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THE ECONOMICS OF SOCIALISM 



THE ECONOMICS 
OF SOCIALISM 

By h; m. hyndman 

Author of 
"Evolution of Revolution," etc. 




fSaENDVM] 



BOSTON 

SMALL, MAYNARD & COMPANY 

PUBLISHERS 






COPYRIGHT, 1921 

BY SMALL, MAYNARD & COMPANY 
(Incorporated) 



JCT -4 132! 
©CI.A627091 



CONTENTS 

PAGE 

Preface vii 

Chapter I. Methods of Production. . . 1 

Chapter II. Value 38 

Chapter III. Surplus Value 71 

Chapter IV. Circulation of Commodities . 108 

Chapter V. Profit 142 

Chapter VI. Rent 159 

Chapter VII. Interest 189 

Chapter VIII. Wages ,200 

Chapter IX. Industrial Crises .... 210 
Chapter X. Objections to the Labor Theory 

of Value ..... 244 

Chapter XI. The Final Futility of Final Utility 258 

Chapter XII. Synthesis of Analysis . . . 278 



PREFACE 

There seem to be many students of political economy 
who do not devote either the time or the attention which 
are required for the complete mastery of Marx's great 
works. They are, consequently, almost as inaccessible 
to the majority of English readers to-day as they were in 
the original German. The subject is hard. Marx's 
style and method of exposition are by no means easy, 
and, if I am to judge by the ridiculous misrepresenta- 
tions of his theories which still pass current at our ancient 
seats of learning, his thoughts themselves are difficult of 
comprehension. 

Karl Marx has now been dead nearly forty years. It is 
safe to say that never has his influence been greater than 
it is now. Nothing, indeed, is more remarkable than the 
hopeless failure of his critics to substitute any scientific, 
or even reasonable, explanation of the capitalist system of 
production for the masterly analysis contained in his 
"Capital." 

We are continually told, it is true, that "Marx is out 
of date"; that "his whole system is a muddle of contradic- 
tions"; that "if he were living to-day he would have to go 
to school again in political economy," and so forth and 
so on. Strange to say, however, whenever these con- 
temptuous sciolists are brought to the test, and they are 
called upon to maintain their position, even anonymously, 
they at once take refuge in discreet silence. In the same 
way, Messrs. Marshall, Foxwell, Sidney Webb, Wicksteed, 

vii 



viii PREFACE 

Bernard Shaw and the whole bourgeois school of Jevo- 
nians and Fabians, who claimed and claim to solve 
all problems of political economy on the theory of final 
utility, when my paper on "The Final Futility of Final 
Utility-," reprinted as Chapter XI, was sent round to 
them as a challenge, declined to discuss Marx's theories 
at all, even in a Political Economy Club! This though 
two or three of them had declared beforehand that Marx 
and his presumptuous expositor would both be crushed 
with ease. 

It has been the same ever since, with all sorts and con- 
ditions of English academic " Professors." And endowed 
Schools of Political Economy, teachers and students alike, 
are to-day equally disinclined to debate publicly, in the 
press or on the platform, the soundness or rottenness of 
Marx's theories; though they continue their campaign of 
detraction whenever they can safely do so — unopposed. 

Marx, in short, still holds the field. Nearly all the 
original work of historic economy done during the past 
fifty years has been based upon his analysis and gener- 
alisations; while the course of economic and social events 
has, in the main, followed the lines of his forecasts. 

But Marx, like other great thinkers, has suffered not 
only from ignorant and prejudiced attacks, but from the 
tendency of some of his bigoted worshippers to erect him 
into a sort of infallible Socialist Pope, and universal ar- 
biter of economic and social destiny. Forgetting, what 
he himself never forgot, that, of necessity, he built upon 
the work of others, who had preceded him, and here and 
there had anticipated him — as John Bellers in the antag- 
onism between money and commodities; Robert Owen as 
to the indispensable necessity of waste under the capital- 



PREFACE ix 

ist system; Fourier (1825) as to industrial monopoly 
being in the long run under capitalism the logical and 
inevitable outcome of industrial competition ; and the 
Chartists as to wage-slavery being only chattel-slavery 
in disguise. Forgetting all this, certain fanatics, far 
more Marxist than Marx ever was, have claimed for him 
the position at one period claimed for, and accorded to, 
Aristotle. They have also carried their fetish- worship 
from the domain of thought into that of wholly uncritical 
propaganda, and have cited "texts" from Marx's earlier 
writings and pamphlets and letters, as Christians quote 
authoritatively from the Gospels and the Epistles of St. 
Paul, about the practical affairs of every-day political and 
social life. 

Now it is safe to say that, on matters of this kind, as 
he showed even in respect to what was advisable in his 
own country, Marx was not a good judge when he was 
living. Nothing, therefore, could possibly be more fool- 
ish than to cite his opinions as decisive on such questions 
when thirty-eight years of rapid and critical development 
have passed away since his death. It is surely enough 
that he has given us, at the expense of a life-time of re- 
search and exposition, the key whereby we may solve 
many of the economic and social problems of the past, 
may comprehend the economic and social antagonisms of 
the present, and may go forward, consciously and capably, 
to the harmonisation of the great material difficulties and 
class struggles which confront us to-day. 

It is Marx's explanation of Mehrwerth, or Surplus 
Value, as the basis of modern competitive production for 
profit, followed by his able and illuminating differentia- 
tion of the categories of capital, and the source of the 



x PREFACE 

average rate of profit, which have developed political 
economy from an art into a science. His Theory of His- 
toric Determinism, or the Material Basis of History, has 
been pushed very much farther, to the exclusion of all 
other considerations, than, certainly, would have been 
approved by Marx himself. But, taken with such modi- 
fications as he would probably have accepted, the theory 
throws much light upon the growth of human society in 
some of its aspects; although Lewis Morgan's plan of 
stripping off each successive layer of inventions and dis- 
coveries, through the long ages of human development, 
and examining the social forms beneath, lends itself less 
to general misapprehension. 

Lately, however, we have had a most extraordinary 
example of the danger of endeavouring to force pseudo- 
Marxism upon a huge aggregation of peoples by a ruthless 
despotism imposed from above. Bolshevism is a com- 
bination of personal ambition and fanatical materialism, 
applied under conditions which rendered any realisation 
of scientific Socialism absolutely impossible. Failure 
was certain. When the leaders of this futile attempt 
tried to anticipate the evolution of economic and social 
forms by generations, through a kind of Collectivist Czar- 
ism, they have been compelled to return to the much 
lower stage of industrialism to which Russia had attained, 
and to bow the knee, by capitalist concessions to for- 
eigners and capitalist reorganisation at home, before that 
very capitalist system which they desired to reorganise 
into Socialism, before its development had fully begun. 

This is precisely the irrational impatience and individ- 
ual arrogance that Marx and his coadjutor Engels would 
have denounced now, and as a matter of fact did denounce, 



PREFACE xi 

as impossible and anarchical, in their own time. The 
scientific Marxists of Russia, headed by George Plech- 
anoff and Paul Axelrod, foresaw and predicted what has 
since occurred, and all the best-accredited exponents of 
Marxist theories in Western Europe agreed with them. 
Bolshevism is, in fact, a hideous travesty of Marxism and 
runs directly counter to the entire teachings of scientific 
political economy and social evolution. 

It is true that, in the last paragraphs of the Commu- 
nist Manifesto, published in 1847-48, ground is given for 
the contention that, at that period, its authors, Marx and 
Engels, thought that great countries, far behind the most 
advanced nations in economic status, might anticipate 
evolution by force. But that I can affirm most positively 
was in direct antagonism to their opinions at a later period. 
Marx, in conversation with myself, stated clearly that, in 
his judgment, a nation could only attain to the level of 
economic and social development for which it had been 
prepared by its internal social evolution. Engels put the 
point still more strongly to my friend Belfort Bax. And 
both of them, singly and together, wrote to the same 
effect as they spoke. To confuse autocratic Bolshevism, 
therefore, with Marxism, or with its political, social and 
co-operative expression in Social-Democracy, is only a 
device of the ignorant or malignant. 

It is natural, however, that political economists who 
uphold either the bourgeoisie or its bureaucracy, in any 
shape, should be as bitterly hostile to Marx, who gave a 
reasoned and scientific basis to economic studies, as their 
predecessors were to the ablest of the Chartists, who put 
the economic antagonism between Labour and Capital, 
between wage-slaves and employers, between human 



xii PREFACE 

agents and the machinery which overmastered them, in 
popular form. Both pointed to Capital as the social 
enemy of the toilers: Marx proved why it must inevi- 
tably continue to be so. His social labour theory of 
value indicates for the capitalist class its absorption into 
the entire democratic co-operative community, as the 
next stage in the upward and onward progress of the race. 
It is not so much the social labour value theory itself, 
as the necessary sociological deductions from it, that 
rouse the animosity of the capitalist "captains of indus- 
try," their professors, and their various dependents and 
hangers-on. 

Hence the great efforts made to show that Marx was 
at one and the same time a man of transcendent ability — 
so much cannot be denied — and a muddle-headed thinker, 
who actually took great pains to contradict in his third 
volume of the "Capital" (produced and edited by Engels 
after Marx's death) all his contentions in the first volume, 
and even to attribute to him the inconceivable fatuity of 
admitting that he did so. I have dealt with this curious 
contradictory estimate of Marx's capacity in Chapter X. 
It is difficult, however, to exaggerate the nonsense, soberly 
and seriously penned, by economists of reputed ability 
and standing, in order to belittle the intelligence of the 
author whose arguments they are wholly unable to refute! 
Thus, not long ago, an elaborate pamphlet, stated to be 
written by one of the leading English Professors of Polit- 
ical Economy, to which Sir Arthur Steel Maitland, M.P., 
contributed a Preface, was lent to me by Belfort Bax for 
comment. It contained the usual Final Futility con- 
tentions, in all their barrenness, and the whole thing was 
scarcely worth glancing at, except as a further proof of 



PREFACE xiii 

the longevity of error, where ignorance and prejudice 
seem to suit the taste of a dominant class. But one crit- 
icism was so contemptible that I reproduce its purport, 
in order to show the lengths to which the exquisite ran- 
cour of the professorial mind will lead a writer who, I 
daresay, in other matters, is quite a decent man. 

This learned gentleman actually gave it as his con- 
sidered opinion that, because Karl Marx was poor through- 
out his life, and was at times much troubled by money 
worries, therefore he was unable to think clearly on the 
subjects with which he undertook to deal. At this rate, 
Spinoza was a fourth-rate philosopher, William Blake a 
poet and artist of no account, and Cort, the originator of 
the hot blast, an inventor of inferior capacity. A case 
must indeed be in a bad way when one of its leading ad- 
vocates resorts to self-degrading imputations of this sort. 

The main reasons why a few of Marx's honest and un- 
prejudiced critics have not grasped his full meaning are 
that they have not covered the whole area of his system- 
atic investigation of value; that they have not followed up 
the distinction between constant capital and variable 
capital to its ultimate issue; that they have not worked 
out his explanation of average rate of profit, as securing 
the distribution among freely competing capitals of vary- 
ing amounts of surplus value; that they confuse cost of 
production with price of production; and that they forget 
that, in applying abstract theories to the solution of 
practical problems, allowances have always to be made 
for friction, changing conditions, and the like. 

Frequently, also, there is a determinate inclination to 
regard the question of the apportionment of gross and 
net profit, due to the unpaid labour of the wage-earners 



xiv PREFACE 

at large, among all the various capitals engaged in social 
production and distribution of commodities, from the 
point of view of the individual capitalist and the personal 
(or company) appropriation of the surplus value, or gross 
profit, produced by such unpaid labour of his own wage- 
earners. Consequently, these writers fail to comprehend 
how it comes about that capitals with greater amounts 
of constant value in their composition obtain for their 
commodities when produced and realised, in money or 
its equivalent, prices higher than their value, and capitals 
with less constant capital in their composition obtain for 
their commodities under the same conditions prices 
lower than their value. 

But, after all, the best evidence that Marx was not 
both a genius and a noodle lies in the indisputable fact 
that his theories have lived down the criticism of bour- 
geois economists. When a Professor of Political Econ- 
omy of the highest reputation, Prof. A. A. Issaieff of the 
University of St. Petersburg, gave up his Chair rather 
than go on teaching what was antagonistic to Marx's 
theories; when, practically, the whole International So- 
cialist Party accepts his views and acts upon his eco- 
nomic principles; when we bear in mind that all this recog- 
nition is due to no sentimental attraction, still less to any 
sort of religious enthusiasm, but is wholly and solely de- 
pendent upon the force of pure reason — I think nothing 
more need be said as to Marx's influence being a living 
power in world-wide sociology. 

In the present volume I make a further endeavour to 
simplify, for ordinary readers, the main points of Marx's 
teaching, which I have been propagating myself, in Great 
Britain, for the past forty years. My personal acquain- 



PREFACE xv 

tance with Marx — broken off by some amusing if viru- 
lent attacks upon me, by himself and Engels, in the well- 
known "Letters to Sorge," and then happily renewed — 
enabled me to have the advantage of direct explanation 
by him of some of the more difficult passages in the 
"Capital." Few are now living who enjoyed a similar 
privilege. 

The book is founded upon a series of Lectures, delivered 
so long ago as 1894, to the members and friends of the 
Social-Democratic Federation, and afterwards printed 
and circulated. They have long been out of print. The 
whole has now been carefully revised, largely rewritten 
and considerably expanded. 

Throughout I have not confined myself to a bold ex- 
position of Marx's views. Wherever it has seemed to 
me desirable, for the better understanding of the subject, 
I have made use of quotations and elucidations from other 
writers upon political economy. I have, also, shown how 
the great war has hastened forward powerful combinations 
of the capitalists, on the one side, and of the wage-earners, 
on the other, with a rapidity not expected in Marx's day. 
The class struggle has thus been intensified throughout 
the world, in the political as well as in the industrial 
field. Direct action, in the shape of mass strikes and gen- 
eral strikes, has been vigorously advocated and adopted 
in more than one country; while in Italy seizure of large 
works by the wage-earners was, though unsuccessful, 
clear evidence of revolt against the entire wage system 
and production for profit. In order to meet this growing 
unrest, peacefully and politically, a thorough compre- 
hension of the general economic and social development 
is indispensable. 



xvi PREFACE 

Some repetitions of the basic truths of the social- 
labour theory of value, as well as of the important cate- 
gories of capital, as defined by Marx, will be found in the 
following pages. I have considered this advisable, re- 
gard being had to the strange misapprehensions which 
are current as to the real purport of Marx's contentions 
and their bearing upon the economic and social problems 
of our day. 

I hope, therefore, in the critical period, social and 
political, upon which we have obviously entered, the 
volume will be of service to students of political economy 
and especially to members of the working-class. The 
resumption of the name and the continuance of the work 
of the old Social-Democratic Federation, by many 
active members of that pioneer organisation of Socialist 
propaganda in Great Britain, remind me of the enthu- 
siasm with which we all worked for the cause from 188Q- 
81 onwards, and I think I can discern signs that similar 
activity and self-sacrificing vigour will be displayed in 
the future as in the past. 

H. M. H. 

13 Well Walk, Hampstead. 



THE ECONOMICS OF SOCIALISM 



CHAPTER I 

METHODS OF PRODUCTION" 

Thanks to the work which has already been done, no- 
body now talks as if our present methods of producing 
wealth had been permanent ever since private property 
broke up the old communal forms. I remember when the 
majority even of educated people spoke as if the system of 
production under which we are now living — that is, 
production for profit and exchange — had lasted through 
all the centuries, and they went back to the history of 
Greece and Eome, of Carthage and of Egypt, and en- 
deavoured to prove that there were prevailing in those 
ancient empires the very same forms and ideas which we 
have in London and in England at the beginning of the 
Twentieth Century. This fallacious method, I am glad to 
say, is now quite exploded. The historical school has so 
completely swept away the old empirical teaching that now- 
adays it is no longer necessary to insist upon the truth 
that economic conditions have changed so greatly as to 
render it impossible to apply the ideas and expressions of 
one period of production to those of another. 

When once we recognise that such phrases as "History 
invariably repeats itself," " What has been always will be/' 
" It is contrary to human nature," " Nobody would work 
unless he saw some profit in it " are the commonplaces 
of the ignorant, a closer investigation inevitably follows. 

Nothing is more difficult than to read oneself fully into 
a past system of society and to understand its industrial 

l 



2 THE ECONOMICS OF SOCIALISM 

and social relations. It is hard enough to comprehend 
societies in different stages of development which still 
exist in our own day. But when we try to transport our- 
selves in imagination into the minds of men of an entirely 
different race at distant periods, such comprehension be- 
comes doubly hard. Happily, many of these social and 
industrial forms can still be seen around us, though, in 
most cases, their higher developments have faded. It is 
true, in a wide sense, that we can trace the industrial and 
social history of man on our planet from the aborigines of 
Australia, the bushmen of South Africa, the natives of 
Patagonia, and the hillmen of India, up to the highest 
development of capitalist civilization in Great Britain or the 
United States of America. All these forms of society can 
be surveyed at the present time, and have been described 
by men who have devoted themselves to their investiga- 
tion. If, therefore, we wish to understand a little as to 
what men were and how they lived in past ages, we can see 
something like them in these various communities, whose 
social development is so much behind our own. 

It is now a commonplace of our knowledge that man- 
kind, in the earlier stages of its existence, lived under 
communism. All writers of any note on the early history 
of man are agreed upon this. Such men as Sir John 
Lubbock, Mr. Taylor, Mr. Herbert Spencer, Lewis H. 
Morgan, Yon Maurer, Bachofen and others express no 
doubt whatever that the earliest form of society was a 
rude communism. Being now at the point when, after 
the successive periods of development under private prop- 
erty, we are on the eve of a great transformation back to 
our starting-place on an almost infinitely higher plane, 
this early communism has a special interest for us. If we 
look through the development of nature we shall find that 



METHODS OF PKODUCTION 3 

the same law apparently governs all organic and inorganic 
growths. In the case of an ear of corn, for instance. 
There is the seed which you sow : this is split up or differ- 
entiated in the earth, and then it reappears in the ear 
again, but on a higher plane. 

In the celestial sphere we can trace the operation of the 
same law from the nebulae to the various galaxies back to 
their point of origin again. In the organic world and 
animal life we detect a similar process going on. These 
and similar illustrations seem to show that the same law 
pervades all nature. It is a reasonable hypothesis, which 
is now being verified under our eyes, that this law likewise 
applies to the development of man in society. If this is so, 
then the last development of human society will be nearer 
in form to its original starting-point than to any of the 
intermediate stages. As we began in the early history of 
our race with narrow, tribal communism, provided with 
and based upon small means of production; so we are now 
proceeding to world-wide communism on an immensely 
higher plane; in accordance with the greater powers over 
nature which we possess, as the result of greater knowledge 
and closer intercommunication. 

Manifestly, we are not now at the beginning, or even 
at the middle, of the capitalist period of production. All 
the signs which betoken the close of a cycle may be de- 
tected at the present time. Admitting this, then the long 
process of splitting up from the earlier communism is at 
an end, and the recombination in the shape of the higher 
and final communism is at hand. Those who try to draw 
a distinction between evolution and revolution, or speak of 
evolutionary and revolutionary Socialism and Socialists, 
misunderstand the entire theory of sociological develop- 
ment, as formulated by the whole scientific Socialist school. 



4 THE ECONOMICS OF SOCIALISM 

Revolution simply means that the evolution of society has 
reached the point where a complete transformation, both 
external and internal, has become inevitable. 

No man and no body of men can make such a revolution 
before the time is ripe for it; though, as men become 
conscious, instead of unconscious, agents in the develop- 
ment of the society in which they live and of which they 
form a part, that they may themselves help to bring about 
this revolution peaceably instead of by violence. A suc- 
cessful revolution, whether effected in the one way or the 
other, merely gives legal expression and sanction to the new 
forms which, for the most part, unobserved or disregarded, 
have developed in the womb of the old society. Force 
may be used at the end of the period as during the incuba- 
tion and full % growth. It is true, as Marx said, that 
" force is the midwife of progress delivering the old society 
pregnant with the new " ; but, on the other hand, force is 
also the abortionist of reaction, doing its utmost to strangle 
the new society in the womb of the old. Force itself, on 
either side, is merely a detail in that inevitable growth, 
which none can very rapidly advance, or very seriously 
hinder. 

If, then, we have at last arrived at the end of the long 
series of centuries in which private property has been the 
dominating factor in economics and society, the early 
communal forms have, I repeat, a special interest for us. 
Not that we shall return to those precise social conditions, 
or that our descendants will necessarily resemble the men 
and women who lived under them; but because that form 
of society is, in its essentials, nearer to the one to which 
we are approaching than any of the societies based upon 
private property could possibly be. Men have lived under 
communism, as nomads, as savages, as village tribes, as 



METHODS OP PRODUCTION 5 

advanced barbarians, vastly longer than they have lived 
under all the forms of private property taken together. 
The history of man on this planet has been in the main 
the history of communism. Moreover, mankind pro- 
gressed from the lowest form of savagery up to the very 
frontiers of civilisation under this social arrangement; in 
which the ownership of the means of making wealth was 
in the hands of the gens or the tribe, and the distribu- 
tion was in accordance with the needs of the various 
members of the community. Though each of these social 
units was, in the earlier stages, at war with every other 
similar unit harmony reigned within the little body itself. 
Kinship, not property or locality, was the bond of con- 
nection. 

All the great inventions which lie at the foundation of 
our modern arts and mechanical appliances to-day were 
first used under Communism. Those who contend that 
inventions must fade under Socialism, and that no further 
progress would then be possible, overlook, or are ignorant 
of, the whole of the early history of mankind. If there 
are any inventions in the entire range of the human appli- 
cation of the power of nature to the purposes of the race 
which excel others in ingenuity, surely the wheel, the pot- 
ter's wheel, and the bow and arrow deserve the first place. 
Yet all of these were discovered under Communism. So 
also were the boat, the sail, the rudder, the oar, the stencil 
plate, fire, weaving, rude printing, building in wood and 
clay, decoration, the cultivation of cereals, the taming 
of animals, and the smelting of metals. It is upon this 
foundation laid by our ancestors of long ago that the 
whole fabric of our modern industry is built up. But for 
the work done by these primitive Communists, but for the 
efforts of the men of genius who devoted their thought to 



6 THE ECONOMICS OF SOCIALISM 

the inventions and discoveries by which we profit, we of 
to-day should be living in skins and depending on fish and 
our fellow-man for the greater portion of our food. 

" The developments of the power of human production, 
whether in agriculture or in manufacture, are necessarily 
due to a long series of circumstances failing any one of 
which the improvement could not have been made. The 
introduction in agriculture of the turnip, of the potato, of 
artificial grasses, of rotation of crops ; the vast improvement 
in the breed of domestic animals; which has enabled meat 
and beasts of burden to be produced of so much better 
quality than heretofore; the properties of manures and 
their right application; the preservation of fish by salting 
and curing, which added so enormously to our food supply, 
extending the cod, ling and herring fisheries to the propor- 
tions of great industries : all these inventions are due to the 
combined observation and steady industry not of one or 
two but of thousands or millions of our race, though some 
lucky individuals may be honoured for the last crowning bit 
of work. Division of labour again, whether adapted to 
special advantage of soil and climate in particular regions 
— as wool-growing in Australia, cotton-growing in Louisi- 
ana, hunting and forestry in the Tyrol, &c. — or devoted 
to the abridgment of toil in workshops and factories ; this, 
one of the most powerful engines for the domination of 
nature and the increase of produce, arises from the long, 
general, never-ceasing progress of human society, and is in 
nowise to be laid to the account of one or more men of 
individual genius. 

" Precisely the same with shipping and navigation. 
No man knows who invented the mariner's compass, or 
who first hollowed out a canoe from a log. The power 
to observe accurately the sun, moon, and planets so as to 



METHODS OF PEODUCTION 7 

fix a vessel's actual position when far out of sight of land, 
enabling long voyages to be safely made; the marvellous 
improvements in shipbuilding, which shortened passages by 
sailing vessels and vastly reduced freights even before 
steam gave an independent force to the carrier — each 
and all were due to small advances which together con- 
tributed to the general movement of mankind. 

" So with the great industrial machines simple or com- 
plicated. Who can fix upon the actual discoverers of the 
application of wool or flax, silk or cotton, hemp or jute, 
madder or indigo to human use or adornment or luxury? 
Their names are legion, doubtless; but all have been swept 
away as time has slowly swept its effacing figure over the 
records of the past. With machines the same is true, from 
the simple wheel, the pump, the forge, the stencil plate, 
the potter's wheel onwards to printing, steam, electricity 
and the great machine-making machines. Each owes all 
to the others. The forgotten inventors live for ever in 
the usefulness of the work they have done and the prog- 
ress they have striven for. 

"We of to-day may associate mythical or noble names 
with the advances we specially remember; but too often 
even then the real worker or discoverer, if such there were, 
remains unknown, and an invention beautiful but useful 
in one age or country can be applied only in a remote 
generation, or in a distant land. Mankind hangs together 
from generation to generation ; easy labour is but inherited 
skill; great discoveries and inventions are worked up to 
by the efforts of many myriads ere the goal is reached. 
Those, therefore, who hold that the individual is all, who 
contend that these organisers or that class have the right 
to take from their fellows in return for the services they 
themselves have rendered, do but show their ignorance of 



8 THE ECONOMICS OF SOCIALISM 

the whole unbroken history of human progress and social 
development/' 1 

The bed-rock inventions of humanity, then, those inven- 
tions on which the whole edifice of modern capitalist in- 
dustrialism is based, were made under Communism. 
Various forms of this primitive Communism can be studied 
to-day. There is, for example, the Communism of the 
Australian aborigines who roam without any fixed habitat, 
or live a precarious life in the roughest and rudest way, 
and yet possess a most remarkable weapon in the boomer- 
ang, and a social system as strange to us as it is effective 
for its immediate purpose. The Communism of these, to 
our ideas miserable, nomads is the lowest social life with 
which we are acquainted, as their knowledge of and com- 
mand over nature is at the lowest point. Nevertheless, 
their existence is not unhappy, and white men who have 
lived among them testify to their enjoyment of life. 

The Eed Indians, many of the tribes of South Africa, 
the New Zealanders and others, show what magnificent 
specimens of mankind are developed under a rude Com- 
munism; while the village Indians in the pueblos of New 
Mexico and Arizona, a quiet, peaceful folk, very different 
from such terrible savages as the Iroquois, the Apaches 
or the Sioux, live a happy and contented life within the 
walls of their communal dwellings. Their power of pro- 
duction is very small indeed compared to ours. Yet they 
till their fields skilfully, have common ground and garden 
land in many cases, divide their food communally after 
it is cooked, and make provision for bad times by storage 
of grain. Their power of production of such food, and 

i " The Historical Basis of Socialism " by H. M. Hyndman, 
p. 99 (1883). Oddly enough this passage was quoted by Mr. 
Samuel Smiles in one of his books! 



METHODS OF PKODUCTION 9 

of the ordinary clothing and other necessaries of life, is 
sufficient managed communally to sustain them in moder- 
ate comfort. 

As to the village communities of India, with their semi- 
communal arrangements, every historian of the country 
bears witness to the simple, happy life of the inhabitants, 
where the old institutions are kept up, and the villagers 
are free from oppression above or raids from without. 
Here, again, though the power to produce wealth is small, 
the condition of the villagers in all the needs of their simple 
life is far in advance of large portions of our city popu- 
lations. They carry out their necessary work without the 
intervention of capital, and the usurer, though not unknown 
in the ancient native society, never obtained dominance 
in the country districts until our capitalist rule gave him 
the legal machinery to oppress with. 

In Polynesia, a quarter of a century or so ago, the 
early communal system might be seen at work, as in New 
Zealand at an earlier date, almost untouched by European 
influence. Here was evidence enough as to the manner 
in which works of considerable magnitude could be carried 
out not only without capital but without any idea of ex- 
change, still less of profit. The great double canoe, Ndrua, 
of the Fiji islanders is, in its way, quite as remarkable a 
product of human skill, regard being had to the tools 
employed, as the huge mail steamers, the Lucania, Cam- 
pania, Majestic, Teutonic, or any of the great vessels cross- 
ing the Atlantic or trading to India or Australia. There 
is not a single nail in the canoe, the whole being held 
together by cocoanut-fibre in the form of sinnett. Yet 
every plank fits close into its neighbour, and the whole 
vessel is quite water-tight. The deck itself is so skilfully 
adzed with a flint adze that a European carpenter could not 



10 THE ECONOMICS OF SOCIALISM 

touch it with his plane. Such a vessel, with a house in the 
middle covering the two canoes, will carry nearly two hun- 
dred men and will sail from eight to ten knots on a wind. 
A canoe of this description is constructed by the continu- 
ous work of skilled artificers extending perhaps over a 
period of two years; and while they are engaged upon it 
they are fed and clothed by the labours of skilled agricul- 
turists and cloth-makers, male and female, and provided 
with fish and turtle by equally skilled fisher-folk. The 
canoe when finished belongs to the tribe. 

Their irrigation works and great huts are marvels of in- 
genuity. Yet none are overworked, none go short of food 
while others have plenty, and certainly the people are ex- 
ceedingly happy, in spite of certain hideous rites and cus- 
toms. It is impossible in such social conditions for a few 
to be lazy and fat and others workless and starving simply 
because the power to produce wealth is too great. If one 
starved through famine all starved. Division of labour in 
the tribe was amicably and conveniently arranged, and 
provision was made against famine in the majority of 
cases by storage, or by tabooing certain groves of fruit- 
bearing trees at periods of threatened dearth. In this re- 
spect great foresight was shown, and there is no reason 
for believing that the methods of wealth-production were 
wholly stationary. Small as their means of making wealth 
were, the natives controlled them, and were not over- 
mastered by them. 

Where the germs of exchange could be traced, as in col- 
lective gifts by one tribal chief to another; or in the early 
individual transfer to be seen in the shape of the rude 
form of barter described in " Old New Zealand " ; or the 
similar plan of " begging " articles which had become 
private property, as in parts of Polynesia; there it may 



METHODS OF PRODUCTION 11 

be said the development towards individual ownership had 
already begun. But the change in this direction, so far 
as we can judge, was very slow. Man in society seems 
to have resisted as long as possible that advance to pro- 
duction for individual, instead of communal, use which 
nevertheless was inevitable in the onward and upward 
course of the development of the race. Personal property 
in weapons, in skins, in decorations, in mats did not at 
all involve the economic predominance of class or caste, 
or the break-up of the communal system. 

But slavery in any shape necessarily puts an end to such 
Communism. It seems not improbable that slavery was 
one of the earliest forms of property, though in the first 
instance it is also almost certain that the slaves belonged 
to the whole tribe rather than to any individual members 
of it, and it is further a probability amounting to cer- 
tainty that slavery itself was due to a direct economic 
cause. 

When, for example, a powerful tribe had reached the 
point at which captives, either by serving as shepherds 
or in any other way, could produce a good deal more than 
their keep, it became more advantageous to enslave them 
than to cook and eat them at once, or to butcher them for 
the mere fun of the thing. Consequently slavery was a 
distinct social advance and, monstrous as chattel slavery 
may seem to the dominant class of to-day, who are in con- 
trol of a more hypocritical system of private property in 
man, it was a necessary step in the long series of changes. 
Chattel slavery was the economic basis of all the great 
civilisations and of all the so-called democracies of an- 
tiquity. But the history of all those civilisations shows 
how hard the old gentile and communal forms died. 

With slavery the accumulation of wealth in private hands 



12 THE ECONOMICS OF SOCIALISM 

grew apace. Exchange between individuals replaced col- 
lective exchange. Their private property as individuals 
became a series of products for the market. Herein is the 
secret of the whole transformation which followed. As 
soon as the producers, instead of using their own product 
and enjoying it with their fellows, ceased to control it 
directly, but let it go out of their own hands for exchange 
against other products, they lost all power over it. They 
could no longer either determine or even know what should 
become of it. The product which escaped from them in 
this way might even be turned, and as a matter of fact 
actually was turned, against the producers themselves and 
became, in spite of all they could do, the means of robbery 
and oppression. 

With the production of goods for exchange came the 
tillage of the soil by individuals for their own gain and 
enrichment, and shortly thereafter individual ownership 
of land. Common land might well be tilled for individual 
advantage before actual private ownership of land became 
the rule, and that this was so appears from many evidences. 
But with the development of individual production of goods 
for exchange money also arose, that universal commodity 
against which all the others could be exchanged. Here, 
however, was another new economic and social power which 
men invented without the slightest idea of the enormous 
control it would obtain over themselves, whether they liked 
it or not. Incapable as they were of comprehending its 
full social significance, they soon learned by bitter experi- 
ence that money represented the sole universal all-pervad- 
ing power before whose throne society must inevitably 
prostrate itself. At all the great centres of ancient civili- 
sation this money-power made its appearance in its most 
cruel and brutal shape, without the slightest reference 



METHODS OF PRODUCTION 13 

to the desires or feelings of those who were dominated by it. 

Slavery, merely as slavery, was not incompatible with 
the maintenance of a communistic or semi-communistic 
tribal system above the slaves. Examples of this form of 
society can be found at the present time. The slaves were 
an inferior portion of the tribe, or gens, or family, but the 
old kinship and the old communism still reigned. But no 
sooner did exchange and money begin to work their way 
than the break-down commenced. Private property, ac- 
cumulation of wealth used to acquire more wealth, such was 
the inevitable progression. Division of labour into various 
branches, crystallised in many cases into rigid castes — 
agriculture, handicraft, trade, shipping, &c. — soon fol- 
lowed. Money and trade steadily forced a path for them- 
selves through the ancient conservative arrangements. 

But, it was a comparatively slow process in every case. 
For many centuries the individual production which gradu- 
ally supplanted primitive and developed Communism, aided 
by a number of slaves who were reckoned a portion of the 
family, strove hard to hold its own against organised slave 
production on a large scale, with its more complete division 
of labour and rapidly-accumulated wealth. 

The history of the development is precisely similar in 
each case. A settlement of tribes gathers round a common 
centre, bound together within themselves not by local as- 
sociation, still less by ownership of the land, but by those 
close ties of gentile kinship, the key of which Morgan 
found, and applied for us to the solution of such early com- 
binations. By slow degrees, as such settlements became 
powerful and afforded security against the general state of 
war without, numerous other folk standing quite outside 
the original tribe arrangements gathered round the settle- 
ments. 



14 THE ECONOMICS OF SOCIALISM 

Simultaneously private property displaced Communism. 
Wealth, trade and commerce grew apace. As the popula- 
tion increased, which had no gentile ties with the original 
settlers, these " old families " formed an aristocracy at the 
top, and classes began to be formed. The conflicting mo- 
tives of kinship and property were in perpetual antagonism. 
The revolutionary idea as expressed in property and local 
habitation inevitably won. Eights based on property quali- 
fication and such local habitation, became sooner or later 
supreme over the ancient gentile relations. Individual 
labour on the land and private property in the products 
and eventually, as already said, in the land itself, became 
the dominant form of production. Slavery spread owing 
to conflicts with neighbouring tribes. As conquests ex- 
tended, or federations were formed, slavery became more 
powerful as a factor of production. Still more conquests 
extended the system : exchange and money had the greatest 
influence, and the class separation became definite and ac- 
knowledged; though slave production and free labour went 
on side by side. 

Then arose, likewise in every case and from the same 
cause, the tremendous question, above the mere arrange- 
ments of production — the question of debtors and credit- 
ors. Private owners of land and property who were com- 
pelled by temporary needs of any kind to borrow money, 
the universal equivalent, found themselves at the mercy 
of their creditors. These creditors themselves were the 
direct ancestors of the modern money-lords and capitalists. 
They were merchants and middle-men, for the most part, 
who accumulated money by standing between the producer 
and consumer, and fleecing both. Having, as a rule, no 
direct connection with the old society, out of which the 
new revolutionary forms of which they were the human 



METHODS OF PEODUCTIOJST 15 

exponents were evolving, they had no mercy whatever upon 
those who became indebted to them. 

Ancient history is full of the cruelties wrought upon un- 
fortunate debtors by creditors of old times. A man who 
could not pay was practically, himself, wife and children, 
at the disposal of the person to whom he was indebted. 
Humanity never entered into the question at all. A bitter 
and bloody class struggle followed. Invariably the State 
or community at large, chaotic from our point of view as 
its relations then were, was compelled to interfere on the 
side of the indebted classes in order to prevent continuous 
bloodshed and eventual disruption. 

The money-lending and usury of ancient times were a 
trading upon the necessities of the borrowers, and the whole 
system was so manifestly an ethical wrong, running quite 
counter to the kinship and communal ties from which so- 
ciety was but just breaking loose, that it was denounced 
throughout antiquity not only by the pagan moralists but 
even at a much later date by the Fathers of the early 
Christian Church. 

The cruelty of economic progress, however, is as terrible 
as the cruelty of nature. It takes no acount of the feelings, 
or passions, or desires of mankind. It entirely disregards 
their morals and their souls. There is no place for re- 
ligion, natural or supernatural, in economics. Dominate 
or be damned. Be master or be slave. Your sentiment 
and your soul are equally dependent on your belly. If the 
latter be not filled the former cannot function. Only when 
the material basis of individual and social life is fully 
assured does the higher development of human intelligence 
and character become possible. Slavery was an inevitable 
stage in the upward path of humanity; and that debtors 
should be subservient to creditors was likewise a natural 



16 THE ECONOMICS OF SOCIALISM 

result of what had gone before and a preparation for that 
which was to come after. 

The great majority were wholly unconscious, then as ever 
since, of what was going on around them. Exchange and 
money, private production for a market and slave produc- 
tion for luxury slowly swept away all that remained of the 
old gentile and communal society. The pressure of wealth 
in every instance became greater and greater until the 
slave system of cultivation was finally predominant and 
slave production became practically universal, almost crush- 
ing out the free workers as an economic force. The upper 
stage of barbarism gave division of labour between agricul- 
ture and manufacture: the first stage of civilisation con- 
firmed this division and pushed it much further. Slaves 
who toiled on the land, in the cities, or in the mines, were 
worked in larger or smaller masses according to the wealth 
of their owners; and were treated cruelly or kindly ac- 
cording to the general social relations or the character of 
their immediate masters. But whether treated compara- 
tively well, as they were by the Greeks, or with cruelty, as 
they were by the Eomans and Carthaginians; whether 
scourged and killed by Cato, or dealt with considerately 
by Crassus, they remained as much chattels, for the most 
part, as the horses* and oxen around them. 

Even those slaves who held superior positions could not 
rely upon being better treated, and it is interesting to 
note, in passing, that the slave " captain of industry," the 
villicus, received a less ration than those whose labour 
he organised, on the express ground that such managerial 
work was far less exhausting than manual labour. All that 
the slaves produced, over and above their keep, belonged to 
their masters, and it was of course by no means only the 
rough and uneducated who were in this position of sub- 



METHODS OF PRODUCTION 17 

servience. Plato, the great idealist philosopher of an- 
tiquity, was sold as a slave, and could only be released 
at a heavy cost. Aesop, the famous fabulist, was also a 
slave, and many other men of ability were born or were 
forced into the like condition. Highly-trained slaves con- 
stituted the most important part of the wealth of the great 
Roman land and slave owner, and next to them in impor- 
tance came his land, his mines, &c. Writers, copyists, 
artists, decorators, gold and silver smiths, skilled crafts- 
men of every kind ; these are enumerated as more valuable 
than all his other property put together. 

The wealth which was piled up by these huge armies of 
slaves, skilled and unskilled, educated and uneducated, was 
enormous : relatively greater, probably, in the case of the 
Eomans, than anything known in the history of the human 
race until the Vanderbilts, the Jay Goulds, the Rockefellers 
and Astors laid hands upon tens of millions sterling on the 
other side of the Atlantic. That Lepidus should have been 
able to maintain a large army in the field at his own cost ; 
that Hannibal could support himself and his armies in Italy 
for seventeen years, largely from the slave-produced silver 
of his mines in Spain — are as remarkable examples of in- 
dustrial wealth as the fact that Caesar could find money- 
lenders prepared to advance him at least £3,000,000 on the 
chance that he would make his way to the chief dom of the 
Eoman Republic. And these instances of huge fortunes 
are drawn from the period anterior to the completest de- 
velopment of the system. 

Obviously, the chattel-slave system of production, though 
much nearer to our present wage-slave system of produc- 
tion than either Feudalism or Communism, was very differ- 
ent from it. Where this method of production prevailed 
the producers as well as their product equally belonged to 



18 THE ECONOMICS OF SOCIALISM 

the master. The one could as well be sold by him as the 
other. Much, or even most, of the produce of his slaves 
might go into exchange and be sold for money, but the 
great land and slave-owner of Greece or Eome or Carthage, 
or Asia Minor was assuredly not a capitalist in our modern 
sense. His wealth was used for his own luxury or to 
augment his fame. He did not enter upon production 
primarily to build up the means of creating more wealth. 
The whole social relations were different : the methods used 
and the end aimed at were quite dissimilar. 

And yet the effects produced were in many respects super- 
ficially the same. From the side of the slaves themselves, 
for example. The slaves of antiquity took their position 
for granted. It was in the nature of things and inevitable, 
just as our wage-slaves of Europe and America to-day for 
the most part regard their economic subservience as un- 
changeable. They could not imagine a society existing 
without slaves. And the ablest philosophers were of much 
the same opinion. Aristotle himself, the ablest and most 
profound thinker of all antiquity, could not see how it was 
possible to dispense with this basic institution, "except 
perhaps by the aid of machines " ; and that he should have 
seen even so far is a testimony the more to his extraordinary 
ability. Yet the numbers of the slaves were practically 
overwhelming. 

In Athens there were 90,000 free citizens, men, women 
and children included, as against 365,000 slaves and 45,000 
slave police. Corinth, Egina, Sparta show a similar dis- 
proportion. In Eome the disparity was still greater. Yet, 
though the whole of the governing classes, in spite of their 
intestine feuds, more than once displayed considerable fear 
as to what the slaves might do, the risings against the 
economic tendency of the time, when they did occur, were 



METHODS OF PEODUCTION 19 

by no means so formidable as from a superficial view might 
have been expected. Even the hideous cruelty with which 
they were treated in the mines of Asia Minor, Greece and 
Spain rarely drove them to revolt; though, when they did 
rise, their insurrections were suppressed with a bloody 
brutality never excelled even by the dominant classes of 
modern times. Their overwhelming numbers in the cities 
would have given them at a later date a far better chance 
of success, had they been able to combine in one fierce on- 
slaught on their masters. 

The whole history of the great slave period shows indeed 
how impossible it is to bring about a change in class re- 
lations until the form of production is ripe for transforma- 
tion, and men's minds, unconsciously to themselves, take 
the course which is prescribed for them by the historic 
development of social and economic forms. 

As slave-production grew and wealth expanded honest 
labour became shameful. A Cincinnatus commanding vic- 
torious armies in the field and then returning to his farm 
and homely domestic life would have been quite impossible 
under the Antonines. Any successful general who so de- 
graded himself would have been regarded by all mankind 
as a drivelling old dotard. The view of labour was much 
the same under the Bom an Empire as it is really in London 
to-day — a toilsome and degrading expenditure of time. 

As slave production also crushed by its competition the 
independent efforts of free men, a class was developed an- 
swering to the free whites of the belated chattel slavery 
in the Southern States of America and the West India 
Islands. These people in all the great cities, but more 
particularly in Eome, had the good luck to possess political 
power which could not be taken from them. As a result 
they were flattered and fed by the governing classes, who 



20 THE ECONOMICS OF SOCIALISM 

effected a cheap insurance of their economic and social 
predominance by liberal allowances of food and a huge 
expenditure on shows. But the seamy side of slave pro- 
duction was not long in turning itself to the community. 
This exhausting method of cultivation practically ruined 
Italy at a comparatively early period ; Eome became entirely 
dependent upon foreign sources for its food supply; and 
the inhabitants, rich and poor alike, had many a bad quar- 
ter of an hour when the arrival of the grain ships from 
Egypt or the Euxine was unduly delayed by bad weather. 

From that time forward Eome, with its slave production 
and turbulent population, became almost as complete a 
world-market for wealth and articles of luxury of every 
description, almost as huge a vampire sucking riches by 
tribute from all parts of the earth, as London or England 
herself is to-day. 

And what an Empire, what a civilisation, what wealth, 
what luxury, what excess was thus due to the generations 
of human cattle who toiled hopelessly on, producing wealth 
for others and bare subsistence for themselves! There is 
nothing more imposing in history. Its roads, which still 
exist, built by the free labour of the legionaries, extending 
unbroken from one end of Europe to the other ; its adminis- 
tration so complete and all-pervading that there was no 
escape from its justice or its vengeance; its peace within 
its borders so profound that even the bloody struggles of 
rival Emperors for supreme power scarcely troubled the 
calm of the surface; its innumerable public works so solid 
and yet so splendid that the ablest of modern engineers 
gaze with admiration on the work of the greatest builders 
that the world ever saw; its military system so complete 
in every part that victory seemed reduced to a certainty, 
and defeat became merely one of those casual accidents 



METHODS OF PEODUCTION 21 

which, as a matter of business, had at once to be repaired. 

Stretching as it did to the uttermost parts of the earth, 
having full mastery here in Britain for over 400 years, 
while it had equal hold on the remotest confines of Asia 
Minor, controlled by men who in their trained capacity 
for domination in all forms have never seen their equals 
on the planet — this extraordinary organisation seemed 
constructed to last for ever. To a Eoman of the great 
days of the Empire it might well have appeared, as he 
looked round on the magnificent cities so connected and 
so ruled, that such a structure, like their roads, their 
aqueducts and their bridges, could never perish nor decay. 
All modern empires seem mushrooms in comparison with 
this. Slow and majestic in its growth: slow and majestic 
in its decay. 

The mills of economics, however, like the mills of God, 
grind slowly but they grind exceeding small. The slave 
culture and manufacture which looked to the ablest minds 
as if it must endure for ever and which never appeared more 
secure than immediately before its final collapse — that 
system, like others, came to its end from economic causes 
at work from the first. Luxury and debauchery, un- 
equalled perhaps before or since, reigned above : the direst 
and most hopeless poverty festered below. The provinces 
were bled to death by excessive tribute; the slaves were 
driven to death by excessive overwork: free farmers were 
ruined by usurers and robbers. Mercenaries of the greedi- 
est kind took the place of the old independent Eoman 
legionaries; and pimps and eunuchs were the cherished 
philosophers of the rich. Yet none could recognise the 
rapid approach of the catastrophe which now seems to all 
to have been so clearly impending. 

Finally came the overthrow of the whole edifice, at any 



%% THE ECONOMICS OF SOCIALISM 

rate in Western Europe. The great barbarians who in- 
vaded the decrepit Empire found a very different state of 
things from that which their ancestors had encountered 
a few centuries before. Their arrival but hastened on the 
inevitable downfall, and provided at the same time the 
means for reconstruction. To the mass of the city popu- 
lations patriotism was a forgotten word: to the miserable 
slaves no change could be for the worse. Consequently, 
there was no resistance capable of withstanding wave after 
wave of invasion, and the greatest chattel-slave Empire 
of antiquity fell. There followed a long period of transi- 
tion and disruption, and amid this apparent chaos new 
growths took root and sprang up. Eoads fell into dis- 
repair, local markets necessarily replaced the Eoman mar- 
ket, local forces overcame imperial power. At last, at 
varying periods, the feudal system, as we know it, became 
the prevailing organisation over Western Europe. 

Here we arrive at the second of the great forms of pro- 
duction by an inferior class consequent upon the institu- 
tion of private property. 

The arrangements were, however, in many respects more 
complicated than those which arose out of chattel-slavery. 
Villenage or serfdom by which the mass of the common 
people dwelling on the soil fell under the yoke of the 
feudal lord never overcame free labour as slavery did, and 
the relations of lord and serf differed materially from those 
which existed between master and slave. Working on the 
land, the villeins could not be removed from it for sale, 
but the lands when disposed of carried with them, their 
serfs. The duties of these serfs varied materially in differ- 
ent parts of Europe, and in many respects they had little 
reason to congratulate themselves on holding a superior 
position to their economic predecessors in servitude. 



METHODS OF PRODUCTION -23 

But in the main the difference between the serfs and the 
chattel slaves lay in the fact that churls and villeins as 
they were, liable as they might be to ill-treatment and mur- 
der at any moment at the caprice of their lord, they were 
recognised as possessing some right to their soil. Thus 
they were permitted in the majority of cases to work so 
many days for themselves as against an equal or greater 
number of days that they were bound to devote to tillage, 
forestry, quarrying, or other services for their lord. Most 
of the total production of the country was thus due to 
their ill-requited toil. When, however, ill-housed, ill-fed, 
and subject to all sorts of indignities, they rose against 
their noble and chivalrous overlords, they were butchered 
and tortured even more relentlessly by the finest spirits of 
the time than the unfortunate slaves were by the leading 
minds of ancient Rome. 

In this respect, indeed, there was little to choose between 
the most saintly catholic knight and the earliest develop- 
ment of the hypocritical nonconformist conscience; seeing 
that Martin Luther, at the very close of the period of serf- 
dom and villenage, was as relentless a persecutor of the 
revolting German Bauers as the Capital de Buch, du 
Guesclin, and Edward the Black Prince were the ruthless 
slaughterers of the French Jacquerie, or the Russells, 
Cecils and Howards the gentle butchers of the English 
peasantry. Butcheries of this sort, by the dominant class 
of the people, are pure matters of business, and the religion- 
ists and moralists of the period are always careful to de- 
nounce the criminality of the weaker side. In any case, 
the futile risings of the peasantry on the continent, and 
even in England, so long as the feudal system retained 
its first vigour, show, as the similar hopeless risings of the 
slaves proved before, how futile, except for the satisfaction 



24 THE ECONOMICS OF SOCIALISM 

of a temporary but legitimate vengeance, are insurrections 
of the people until the time is economically ripe for an- 
other stage in the development. 

The villeins formed the main part of the unskilled and a 
portion of the skilled labourers during the predominance 
of the feudal system, and unsatisfactory enough was their 
method of cultivation and work. But most of the barons 
and their retainers, the lords, thanes, and freemen, lived 
in a rude plenty; while some of the richer feudal lords, 
lay and cleric, had around them an amount of comfort 
and luxury which, if not equal to that of the Eoman or 
Byzantine nobles, was still very great. 

Side by side with serfdom, also, was the large body of 
free workers, in country and town alike, who no longer 
regarded labour as in any way degrading, and who had 
inherited from the barbarian invaders, or had acquired 
from them, notions in regard to general freedom and col- 
lective ownership which placed them in a very different 
position from that of the mere emancipated slave or predial 
serf. Free peasants and free artisans, whatever dues they 
might owe and pay to their lords in return for privileges 
or services, were as free economically as men in that day 
could be. Gathering round the castle for protection 
against the robber hordes or legitimate invaders of their 
territory, or clustered in fortified cities — whose narrow 
streets and lofty houses show to-day how crowded these 
fortresses became — the artisans and craftsmen carried on 
their trades in democratic guilds with strictly limited ap- 
prenticeships, and showed from time to time, throughout 
the continent as well as in Great Britain, that they knew 
very well how to protect their freedom against any attempt 
at encroachment by the feudal superiors, to whom they 
were nominally or really subject. Still, in these relations, 



METHODS OF PBODUCTION 25 

there was no capitalism in the modern sense. Though 
banks and banking were beginning, and exchange was as- 
suming something of its modern features, the wealth of a 
great baron or prince of the Church, great as it often was in 
every respect, was due in no sense to the use of his capital 
or to the gains which he made by direct trade. 

As communication after the break-down of the Eoman 
roads and the collapse of all central authority became in- 
creasingly difficult, production in the interior of most of 
the detached provinces into which Europe was thus spilt 
up was carried on chiefly for immediate use of the pro- 
ducers and their families; for the benefit of the feudal 
lords or the Church to whom portions of the produce were 
payable as dues for personal service, fees for privileges 
granted, or tithes for the poor. Only the superfluity, after 
these claims were satisfied, came forward for exchange, 
and then only into local markets. 

The holdings of land and property and tenure of posi- 
tion: whether held under the beneficiary system in which 
property considerations predominated; or under vassalage, 
which was a purely personal relation between one or more 
individuals in the feudal chain and another individual; or 
by immunity, which was a political privilege granted for 
some service rendered or some quarrel compromised — 
each and all of these involved payment of dues, or services 
in peace or war to the immediate superior, through a long 
chain of infeudation and subinfeudation from the king or 
great over-lord downwards; and from the villein working 
out his enfranchisement, or the poor peasant just able to 
maintain his family, upwards. They were all personal 
relations, although the form which the discharge of the 
obligations took might be pecuniary. The differences in 
the shape of these relations and connections, in various 



26 THE ECONOMICS OF SOCIALISM 

parts of Europe, were countless, but in the main the system 
itself was the same. It was in fact a great rural hierarchy, 
modified by the growing power of the towns, with their 
increasing wealth and independence for the burgher class, 
and by the influence of a sacerdotal hierarchy, that of the 
Catholic Church. 

The articles of use, of beauty, and of luxury produced at 
this period, even in countries which, like our own, were at 
the time in many respects rude and barbarous, awaken 
our admiration. We have, in fact, only to look round our 
museums, or to read the list of the rich things paid as 
dues or given to a prince or baron of the day, to under- 
stand that capital is in nowise necessary to the develop- 
ment of the beautiful in art. The splendour of the ca- 
thedrals alone, the ruins of the abbeys and monasteries 
which abound in Great Britain, are quite sufficient to tell 
us that there was no lack then of architects, decorators, and 
builders of the very highest skill in every department of 
their craft. 

In the long run, the free cultivator and free craftsman, 
the yeoman and the artisan, overcame the competition of 
the serfs, if competition it could be called. The serfs were 
gradually emancipated because their position became first 
economically unsatisfactory to the community and then 
ethically wrong. At length, therefore, in England, the 
most advanced European country, cultivation of the land 
and handicraft by freemen finally replaced villenagc, and 
England of the fifteenth century, as has been so often 
pointed out of late years, was essentially the country of free 
men — free producers who commanded as individuals their 
own means of production and raw materials. If ever in- 
dividualism in its economic and social sense could be per- 
manently maintained, then was the time. Everybody 



METHODS OF PRODUCTION 27 

wanted to keep it up. The results to the kingdom at 
large were satisfactory to all, and even the upper classes, 
with all their arrogance and brutality, were in a sense 
proud of the well-being and independence of their work- 
ing countrymen. 

Never before or since has man as an individual had such 
a chance. Controlling his own tools and his own product, 
selling his labour for hire but seldom and at a good rate; 
in the country master of his holding and entitled to his 
share of the use of the common land; in the town member 
of his guild, secure of his privileges, safe to rise from 
journeyman to master craftsman and protected against 
competition — the advantage of such circumstances, and 
the real freedom and sturdy well-being they gave birth to, 
I have often descanted upon. 

Local markets, in which adulteration was made criminal 
and where profit-mongering was relentlessly put down, were 
supplemented to some extent by the great national and 
international fairs, at which goods from all parts of Europe 
and the East were freely offered for sale in exchange for 
local products. A local and national spirit of individual 
initiative was thus engendered, which was vivifying to all 
it touched then and rouses our admiration now. There 
was some pleasure in doing good work when the craftsman 
himself was in his way more than half an artist, and the 
artist who was not also a craftsman was unknown. 

The whole thing hung together. Individual production, 
individual ownership, individual exchange. From the first 
step to the last, the worker controlled his means of pro- 
duction and controlled his product. There was no prob- 
ability then that the creature of his own brain, fashioned 
by his own hands, would turn again and rend him in 
the form of an over-produced commodity. The supply and 



28 THE ECONOMICS OF SOCIALISM 

demand alike of goods and of labour were strictly regu- 
lated : the object of the restrictions being almost invariably 
to secure good articles and good pay for producing them. 
When each man worked the whole or the greater part of 
his time on the land, or in the town, under such conditions 
as these; when he was certain of good, if rough, food and 
good clothing from year's end to yearns end; when educa- 
tion was far more general and better than has been com- 
monly supposed; and when wage-earning was the excep- 
tion rather than the rule — when all this was the birth- 
right of the working-class, there is little need to -marvel 
that they did not welcome a change of system with any 
great alacrity, so far as they could understand what was 
coming about. 

But this happy period of national isolation and full 
bellies could not continue. It was impossible to round up 
England from the onward movement of human kind at 
large. 

Once more economic development recked little of the 
human happiness of the moment: once more mankind 
moved unconsciously onward towards the completion of the 
full and orbicular cycle marked out for the evolution of 
the race. 

Of the expropriation of the freeholders long since ac- 
complished in Great Britain and now going on all over 
Europe; of the downfall of the old feudal nobility and 
the confiscation of Church property; of the cruel vagrancy 
laws, and enactments against working-class combinations; 
of the conversion of the democratic guilds into close capital- 
ist corporations — of these and other events which ushered 
in the modern capitalist system I need not here speak at 
length. A whole library of works treating of these matters 
has been placed at the disposal of the English public since 



METHODS OF PRODUCTION 29 

my little " England For All " first set the work on foot just 
forty years ago. And now, in any city of the English- 
speaking peoples, a student can, with little difficulty, and 
with a comparatively small expenditure of time or money, 
master all that he needs to know concerning the growth of 
the wage-earning class. The facts are there, I say, but 
they are not, unfortunately, by any means always rightly 
interpreted. 

Individual production for immediate use gradually gave 
way to social production for private profit. How it came 
about that large numbers of free men found themselves, 
in this country first, and afterwards in other countries, 
deprived of land, destitute of means of production, and 
possessed only of the sole right to sell the power of labour 
in their bodies to those who possessed land and means of 
production, is a chapter in economic and social history 
extending from the reign of Henry VII to that of James 
I; and again from the beginning of the eighteenth to the 
first quarter of the nineteenth century. Never in history 
before was so great and crucial a change in the relations of 
production so rapidly brought about. The development 
may be said to divide itself, as stated, into two periods. 
In the first period production for exchange was gradu- 
ally substituted for individual production mainly for 
use. 

This change was accompanied by a similarly gradual 
growth of the purely wage-earning class, by the expansion 
of commerce and trade, and the replacement of the local 
market, first by the national, and then by the international 
and world-wide market. 

The second period is essentially the age of machinery ; in 
which, that is to say, steam and improved mechanical and 
chemical processes dominate the whole industrial system. 



30 THE ECONOMICS OF SOCIALISM 

In the first stage, the producer becomes accustomed to 
regard himself as a wage-earner for life. In the second 
stage, he becomes accustomed to look upon himself not 
only as a wage-earner for life but as an appendage to the 
great machines of production and distribution around him. 
In the earlier time spoken of, he might still, though a 
wage-earner, use his machine when at work, and remain 
still to some extent an independent man. In the later 
period, he becomes, and must become, more and more the 
mere slave of the mechanism of industry, which his fellows 
have fashioned and which he, conjointly with them, might 
use and dominate. 

The crucial change which lies at the bottom of the entire 
transformation is that from individual to social production, 
unaccompanied' by the modification of individual into social 
exchange and appropriation of the product. 

That may seem too abstract a statement. The worker 
of the fifteenth century in England had, as we have seen, 
a complete control over his tools, his raw materials and 
his finished product ; or, if a peasant farmer, he owned his 
own land, lived off his own cereals and fruit and live stock 
and clothed himself to a great extent with his own wool. 
In the case of the handicraftsman, whether saddler, smith, 
jeweller, tailor, or the like, he produced with a view to 
the local market, and probably owned land as well. Such 
a man was his own master as an individual, and even the 
stonemason, though more continuously a wage-earner, came 
into the same category in the main. When, however, a 
number of workers began 'to work under the control of 
a master permanently for wages, the raw material, the 
finished product, and the place in which they worked 
all belonging to the master — who produced the articles 
not primarily for use but for exchange in order to make a 



METHODS OP PKODUCTION 31 

profit — then, manifestly, the entire basis of the system 
was transformed. 

No longer was it merely the superfluity but the whole 
production which went into exchange. No longer did the 
individual worker work as an individual, he worked as a 
portion of a complete social organism for a social purpose, 
namely, exchange. No longer did the product belong to 
him either wholly or in part; it belonged to his employer 
and to him alone, and the wage-earner had no say what- 
ever as to its method of production or as to its disposal. 
No longer also did the worker work only incidentally as a 
wage-earner: he toiled continuously as a wage-earner, and 
as a wage-earner only, all his life through. 

Here, then, we have the great, fundamental antagonism 
of our present system of capitalist production, which 
emerged from the old individual production of freemen. 
It is the antagonism which lies at the root of all the other 
antagonisms : 

Social production over against individual appropriation 
and exchange. 

Thenceforward from that point the rest of the develop- 
ment and its class relations are comparatively easy to 
understand. In spite of certain local survivals of the old 
system, such as peasant proprietors and skilled craftsmen 
in certain parts of Europe and in certain trades: in spite 
of new developments such as the farmers of Western Amer- 
ica, and the fruit and vineyard proprietors of Australia, 
the tendency is all in the same direction. 

The production for the local market fades into produc- 
tion for the national and world market. 

All the old middle-age restrictions are swept away and 
even modern protection becomes very different from its 
middle-age correlative. 



32 THE ECONOMICS OF SOCIALISM 

Production for profit becomes the rule: production for 
use the exception. 

The workers instead of being wage-earners at intervals 
become wage-earners for life. 

Exchange and the pecuniary relations which grow out of 
exchange dominate and control the whole of society. 

All the old class antagonisms fade by degrees into the 
last and final antagonism, between wage-earners and owners 
of the means of production and distribution. 1 

We are landed, in short, in that great maelstrom of 
capitalist production with its whirl of commodities and its 
series of economic antagonisms which it is the object of 
this book to endeavour to examine and simplify. This de- 
velopment has been almost infinitely more rapid than any 
of its precursors. Capitalism in its present form is barely 
180 years old; and yet, as said at the commencement of 
this chapter, it is even now obviously in its last period. 
Nay, more, the transformation to the new and final stage 
of human power over nature has already begun. 

What has pushed mankind on thus rapidly? What has 
so greatly accelerated the rate of progress beyond that of 
all former ages? Unquestionably the growth of the great 
machine-industry motived by steam, oil and electricity. 
Erom the middle of the eighteenth century the human race 
fell into the grip of its own tremendous mechanical con- 
trivances, which, though many of them had been discovered 
before, then first became applicable to the needs of society. 
But they were not handled by society. They were, they 
are, and for a time still will be handled by the possessing 
class against society. Once more the cruelty of economic 
progress makes itself felt. The great machine industry 

i Those who desire to follow the subject further may consult 
my "Evolution of "Revolution." (Grant Richards, London. Boni 
& Liveright, New York.) 



METHODS OF PRODUCTION 33 

which might have lessened labour and rendered toil un- 
known, which provides mankind with the means of doing, 
what Aristotle foresaid might thus be possible — the final 
abolition of slavery in every form — this great machine 
industry dominating instead of being dominated, has 
crushed individuality, broken up family life, rendered ex- 
istence more uncertain than ever before, and filled our 
cities with huge hordes of propertyless proletarians ; at the 
same time that it has denuded the country districts of their 
population and has rendered London and England more 
dependent on foreign sources for food supply than ever was 
Rome. 

All wealth is due to labour applied to natural objects. 
This is an obvious truth, when labour is engaged in creating 
wealth under communism, under slavery, under serfdom, or 
when individual free farmers are producing food, or materi- 
als for clothing, or cattle or a superfluity of hides, milk, 
cheese, &c, for exchange. There can be no doubt whatever 
in these cases as to what is the agency by which the various 
useful articles are produced. Nor, when exchange is con- 
ducted by barter, does any dispute arise upon this point. 
What is the actual measure of value between two articles 
which are exchanged, under these conditions of barter, is 
never considered. Supply and demand, in the shape of tha 
higgling between the buyers and sellers, determine each 
several transaction, whether it be between communist 
tribes or between Carthaginian merchants and West Afri- 
can savages, trading away their gold dust for goods. 

Even under the capitalist system of production for ex- 
change and profit, nobody would be so foolish as to con- 
tend that wealth could be obtained, in the first instance, 
without labour; for if none laboured there would be no 
wealth at all and man would speedily perish. Only the 



34 THE ECONOMICS OF SOCIALISM 

fact that, without slavery or serfdom, or any apparent 
compulsion, one class is in possession of all the social 
means of production and distribution, inherited from past 
generations and now constantly improved from decade to 
decade by social discovery and invention, and another class 
owns nothing but the labour power in the bodies of its 
members, which those propertyless persons are obliged to 
sell as a commodity to the possessors of capital in order 
merely to live — only these facts introduce a complexity 
into the problem which enables the capitalists and their 
professors of political economy to confuse the whole issue, 
under this modern form of the production of wealth. 

Even to-day, also, the majority of any nation has little 
knowledge of its own surroundings. The workers of Great 
Britain as a whole do not recognise nearly to the extent 
their Chartist forbears did, how completely the wage-sys- 
tem holds them in thrall, they are unaware that, so long 
as this system continues, their emancipation, either as 
individuals or as a community, is impossible; and they 
almost resent the statement that the ownership of all the 
great means and instruments of making wealth, by a 
small minority of the population over against them, in- 
volves them in a class war whether they like it or not. 
Yet capitalism in its modern form is so recent, and was 
so fiercely resisted in this island, in its development to 
its full power less than a hundred years ago, that such 
forgetfulness of its origin is a remarkable instance of 
human oblivion. 

How different this capitalism is from any of the ancient 
methods of production is at once apparent when historically 
and economically considered. Moreover the illustration 
of its growth is far clearer in Great Britain than in any 
other country in the world. Not only did the entire trans- 



METHODS OF PRODUCTION 35 

formation of industry and transport by land and sea, ow- 
ing to steam, great factories, railways, &c., begin in that 
island, but the expansion of the proletariat — the indigent 
population deprived of all property, even in the shape of 
small land-ownership — assumed far larger proportions in 
Great Britain than anywhere else. In fact, the small land- 
owning and small handicraft sections almost entirely dis- 
appeared. This is why the examples of the domination 
of capital in the modern evolution of production are chiefly 
drawn from England, though other nations have advanced 
farther than the English employers in several departments 
of industry. There is no peasant proprietary in Great 
Britain as in France, Germany, Italy, Belgium, Eussia and 
other European countries, to act as a conservative, or re- 
actionary, element in opposition to the revolutionary ten- 
dencies of the workers of the towns when these latter be- 
come conscious of their true class interests. 

There is, in short, no antagonism between the toilers 
of the country and the city here as there is elsewhere. 
They can brigade themselves together on one common basis, 
in order to proceed, either peaceably or forcibly, to the 
next stage in the evolution of the race: and this stage, 
as already stated, must inevitably be a reversion to collec- 
tivism, communism and socialism, on an infinitely higher 
plane than the primitive barbarian communism under 
which our remote ancestors laid the foundations of man's 
rapidly advancing control over the forces of nature. Nor 
should the truth be overlooked that the change in the forms 
of production, distribution, exchange, and communication 
has been far greater in the last hundred and seventy years 
than in all the previous history of man on the planet ; that 
this modification is proceeding even now at a cumulative 
rate; and that it is possible for human beings in society, 



36 THE ECONOMICS OF SOCIALISM 

through education, combination and mutual intercourse, 
to far transcend in the rapidity of their economic and social 
development any previous period known to man. 

At the close of even such a brief and cursory survey 
of the methods of production as this, it is impossible not 
to be struck with the wholly unconscious and helpless 
manner in which mankind has drifted, rather than pro- 
gressed, from one stage to another. From communism 
into chattel-slavery and private property the development 
was wholly unconscious: the resistance to and the ac- 
ceptance of the new forms were equally actuated by 
ignorance and ignorance alone. The ablest brains of the 
time could but bring to bear immediate, transitory, and 
so-called practical, remedies for the pressing needs which 
threatened to subvert the entire community. None could 
comprehend what was going on around them : not a single 
man of genius could formulate the process of change 
through which his society was passing. 

So it was all through the long, long centuries during 
which chattel-slavery, and the forces of production that it 
called forth and created, dominated man in civilisation. 
Great administrators and able thinkers as the Eomans and 
the Eoman Empire produced, they and their jurists were 
too practical, too much bent on solving obvious problems 
as they arose, to recognise the existence of the still greater 
problem which was solving itself around them. 

When chattel-slavery came to an end, and villenage and 
feudalism were substituted, still the same blind, unconscious 
and unregulated force of human development worked its 
way on. The ablest and most far seeing men of the whole 
of the great time of art, eloquence, conquest, and discovery 
failed to perceive whither they were going, and were swept 
hither and thither on the current of the stream which bore 



METHODS OF PKODUCTION 37 

them they knew not to what shore. If here and there a 
dreamer arose who saw in his visions dimly into the 
future, he himself felt that he was but a dreamer and 
that, when his body returned to earth, his waking sensa- 
tions would be no more capable of impelling him to con- 
scious action, or of inducing others to follow him, than 
they were before he was rapt up into the Seventh Heaven 
of the seer. 

So again was it when serfdom disappeared and individ- 
ual freedom reached the highest point to which individ- 
ualism, unsocialised, can attain. Still unconsciously, still 
blindly, still ignorantly, groping like children in a darkened 
room, did mankind drift from that sturdy individualism 
into the Malebolge of capitalism with its inevitable but fear- 
ful cruelty to the weakest and most sensitive of the race. 
Like the Nemesis of the ancients the wheel of economic 
progress rolls on, crushing the noblest and the worst indif- 
ferently in its course. 

Men of our epoch are the inheritors of the lessons of all 
the ages. The long martyrdom of mankind to the forms 
of production and exchange has enabled us to proceed con- 
sciously and deliberately where our ancestors could but 
move unconsciously and anarchically. Thanks to their 
sufferings, we can see where they could not. 



CHAPTER II 

VALUE 

The thorough knowledge and understanding of what 
the word " value " means is essential to any fruitful exam- 
ination of the capitalist system of production. This is 
admitted by economists of every school, though many of 
them at once go on to render any true conception of value 
impossible. 

To begin any analysis, however, it is first necessary to 
grasp what wealth is. It assuredly is not, as Aristotle 
says it is, only that which is interchangeable ; for a society 
may be, as we have seen, very wealthy in proportion to its 
needs, into whose midst the idea, still less the practice, of 
exchange has never come. Eobinson Crusoe, the favourite 
example of the individualist, was at the end of a few 
years' work on his island a wealthy man in his way ; though 
in his case, notwithstanding the fact that he possesses the 
tools and weapons of civilisation, the very possibility of 
exchange had entirely ceased. An individual, or a society, 
which has an abundant supply of all the things needed for 
existence, enjoyment and luxury, according to the ideas 
of the time, and the power to keep up this supply at the 
same or a higher level, is wealthy; and the ownership of 
such a supply constitutes the possessor, in any ordinary 
sense of the words, a person of wealth. Wealth, therefore, 
primarily consists in an accumulation of goods, houses, 
clothes, beautiful objects, boats, food and so on which 
together give enjoyment to those who own and can use 

38 



VALUE 39 

them. This whether they can be exchanged for other 
articles or not. 

Nothing has tended more to confuse the mind of the 
student of political economy at the start than the statement, 
which we owe to the great father of science himself, that 
there are two sorts of economic value : value in use, or use- 
value ; and value in exchange, or exchange-value. If any- 
thing is useful to us it is no doubt valuable to us. We 
don't want to give it up, unless more of it is easy to get : 
we wish to derive the full benefit from it. But it would 
be equally useful if there were an endless supply of it, 
and all the world could take as much as each needed. In 
that case there would be no contest whatever about indi- 
divual possession, though the need of a constant supply 
might be as great as ever. 

Value in the economic sense, therefore, only appears 
when, in addition to usefulness, relations of exchange 
between articles of social use are established. Thus we 
know that air, water, light are of enormous value, in the 
sense that we cannot live without them. But they are so 
plentiful, as a rule, that they have no value in the economic 
sense; that is to say, they will fetch nothing in exchange 
for other things. But in the desert, in a prison, or on 
board a boat from a wrecked vessel, men have been known 
to offer all the wealth they had at command for a little 
water. In these exceptional instances, as in the case of a 
besieged city, the value both in use and in exchange of 
that which, in other conditions, is practically valueless be- 
comes almost infinite. 

But we have not to do here with such exceptional cases, 
any more than with the value of food in a famine. The 
object in view is to arrive at what constitutes the value of 
useful things on the average when they are exchanged in 



40 THE ECONOMICS OF SOCIALISM 

a general free market. Aristotle, who saw and foresaw so 
much, understood that exchange under such conditions 
must be an exchange of equivalents — of things of equal 
value ; though slavery disguised from him what formed the 
basis of this equality of exchange. No matter how unlike 
the things may be which are exchanged, coats and bread, 
hats and iron, the equality of their value, in certain 
quantities relatively to one another, is established on the 
average by their exchange, and this equality is arrived at 
by competition and the higgling of the market. 

Now, in modern capitalist societies nearly everything 
which is raised, produced, or made, is so with a view not 
to its use by those who create it, or their immediate neigh- 
bours, but for the purpose of exchange in the open market. 
These goods thus produced for exchange are called in 
economic language commodities, or wares — useful articles 
primarily intended for exchange and sale. The workers 
and their employers alike look to the general market as they 
produce cups and saucers, pots and pans, clothes and 
furniture, gold and diamonds. And the wealth of our 
present society, by common consent, consists in a vast ac- 
cumulation of these commodities or wares, which all have 
an exchange value. 

Now, how are these commodities exchanged under the 
conditions spoken of? What is it which regulates their 
value, their relative value, when exchanged against one 
another ? 

It is remarkable that nearly all economists of note are 
agreed as to what constitutes value. They say, with one 
accord, that quantity of labour constitutes value; the 
amount of human labour, that is to say, which it costs to 
produce the commodities or wares which are exchanged 
against one another. 



VALUE 41 

Of late years,, it is true, there has arisen a school — if 
school it can be called, in which mere word-spinning is 
reduced to a system — which holds that " utility," or even 
" desire " alone, constitutes exchange value. I shall deal 
with this strange aberration separately. Meanwhile, the 
following extracts give the opinions of those who are still 
reckoned the greatest English economists: 

Thus, Sir William Petty says, speaking of exchange 
value with reference to corn : 

" How much English money is this corn or rent worth ? 
I answer, so much as the money which another single 
man can save within the same time over and above his 
expenses if he applied himself wholly to produce and make 
it; viz., Let another man so travel into a country where is 
silver, there dig it, refine it, bring it to the same place 
where the other man planted his corn, coin it, &c, the same 
person all the while of his working for silver gathering 
also food for his necessary livelihood and procuring him- 
self covering, &c. I say the silver of the one must be 
esteemed of equal value with the corn of the other ; the one 
being perhaps twenty ounces and the other twenty bushels. 
From whence it follows that the price of a bushel of this 
corn to be an ounce of silver. If a man can bring to 
London an ounce of silver out of the earth in Peru in the 
same time that he can produce a bushel of corn, then one 
is the natural price of the other; now, if by reason of new 
and more easy mines a man can get two ounces of silver 
as easily as formerly he did one, then corn will be as 
cheap at ten shillings a bushel as it was before at five 
shillings a bushel, caeteris paribus." 

Petty confines himself here to value in exchange as 
observed in the society of his own day. But by treating 
the subject solely from the individual point of view as 



42 THE ECONOMICS OF SOCIALISM 

depending upon the labour of "another man/' "a man" 
and so forth, he confuses the general issue. Also, he omits 
the element of the relative wealth, or ease of accessibility, 
of the silver ore, in the mine from which the ounce of 
silver is obtained, which still further affects the question of 
individual exchange. But he does not go back to anterior 
conditions of society, in which exchange as an important 
factor was wholly unknown, for the purpose of justifying 
the labour basis of value. This was left to his successors 
generations after his death. They use the hunters and 
fishers of primitive times as reasoning as to the value in 
exchange of their chase or their catch being reckoned upon 
the amount of labour it had cost them to procure their 
game or fish, regardless of the truth that the hunters and 
fishers of this or that tribe of savages had not and could not 
have such a conception in their minds as exchange, either 
upon that basis or in any other recognised form. Nothing 
can be more misleading than this when we consider value 
in exchange under social and economic conditions where 
exchange has become the principal motive for production in 
every department of human industry. But the argument 
that labour constitutes the main constituent of value in 
exchange is overwhelming even when imperfectly put. 

Adam Smith's well-known passage is almost too trite to 
repeat : 

"The real price of everything, what everything really 
costs to the man who wants to acquire it, is the toil and 
trouble of acquiring it. What everything is really worth 
to the man who has acquired it, and who wants to dispose 
of it or exchange it for something else, is the toil and 
trouble which it can impose on other people. Labour wa3 
the first price — the original purchase-money that was 
paid for all things. In that early and rude state which 



VALUE 43 

precedes both the accumulation of stock and the appropria- 
tion of land, the proportion between the quantities of labour 
necessary for acquiring different objects seems to be the 
only circumstance which can afford any rule for exchang- 
ing them for one another. If among a nation of hunters, 
for example, it usually costs twice the labour to kill a 
beaver which it does to kill a deer, one beaver would natu- 
rally be worth or exchange for two deer. It is natural 
that what is usually the produce of two days' or two hours' 
labour should be worth double of what is usually the pro- 
duce of one day's or one hour's labour." 

And Adam Smith then elaborates this same proposition 
at greater length. 

Benjamin Franklin estimates the value of everything 
by labour, general labour, and regards labour as the sub- 
stance of value throughout. He says : " Trade in general 
being nothing but the exchange of labour for labour, the 
value of all things is most justly measured by labour." 

Eicardo having adopted and confirmed Adam Smith's 
view as to the basis of value in exchange being cost of 
production as measured by labour for the original hunter 
and fisher, into whose brain the very idea of exchange had 
never yet come, proceeds: 

" That this is really the foundation of the exchangeable 
value of all things, excepting those which cannot be in- 
creased by human industry, is a doctrine of the utmost 
importance in political economy. If the quantity of labour 
realised in commodities regulate their exchangeable value, 
every increase of the quantity of labour must increase the 
value of the commodity on which it is exercised as every 
diminution must lower it. 

"To convince ourselves that this is the real foundation 
of exchangeable value, let us suppose any improvement to 



44 THE ECONOMICS OF SOCIALISM 

be made in the means of abridging labour in any one of 
the various processes through which the raw cotton must 
pass before the manufactured stockings come to the market 
to be exchanged for other things; and observe the effects 
which will follow. If fewer men were required to culti- 
vate the raw cotton, or if fewer sailors were employed in 
navigating, or shipwrights in constructing, the ships in 
which it was conveyed to us ; if fewer hands were employed 
in raising the buildings and machinery, or if these, when 
raised, were rendered more efficient; the stockings would 
inevitably fall in value, and command less of other things. 
They would fall because a less quantity of labour was 
necessary to their production and would therefore exchange 
for a smaller quantity of those things in which no such 
abridgment of labour had been made. 

" Economy in the use of labour never fails to reduce the 
relative value of a commodity, whether the saving be in 
the labour necessary to the manufacture of the commodity 
itself, or in that necessary to the formation of the cap- 
ital, by the aid of which it is produced. In either case 
the price of stockings would fall, whether there were fewer 
men employed as bleachers, spinners, and weavers, per- 
sons immediately necessary to their manufacture; or as 
sailors, carriers, engineers, and smiths, persons more in- 
directly concerned. In the one case, the whole saving of 
labour was wholly confined to the stockings ; in the other, a 
portion only would fall on the stockings, the remainder 
being applied to all those other commodities, to the pro- 
duction of which the buildings, machinery, and carriage, 
were subservient." 

John Stuart Mill also, although with his inveterate 
eclecticism he so contrives that, on this point of value, 
one page should carefully contradict another, states in so 



VALUE 45 

many words with respect to " the component elements of 

the cost of production " that " the principal of them, and **"* 

so much the principal as nearly the sole, we found to be 

labour." 

It would be easy to extend these extracts by drawing 
upon other English and foreign writers of note on political 
economy. 

Every one of these quotations shows that all these 
thinkers took labour, quantity of human labour, as the 
basis and measure of the value of commodities when ex- 
changed against one another. But they do not sufficiently 
distinguish what labour. They all speak of the labour as 
practically the labour of this or that individual, or set of 
individuals. There they stop. 

But it is precisely at this point that the main difficulty 
of the analysis begins, and the great service which Marx 
rendered to economic science, when he published his first 
volume of the " Capital," more than fifty years ago, be- 
comes apparent so soon as we fully comprehend what that 
difficulty was. 

Commodities, or wares, when produced or exchanged, are 
necessarily useful, in the social conditions of the time, or 
they would not be exchanged. There are many things 
which are reckoned useful, socially useful, to-day which, 
under other conditions of human life, would be considered 
useless, or even harmful, and would not enter into ex- 
change at all. Bad gin, heavily-boned stays, tall hats, 
" bosh " butter are commodities, and possess utility nowa- 
days, but possessed utility at no other period. Such social 
utility is, I say, invariably assumed in all commodities 
which enter into the market for exchange. 

When everything which marks the quality of things, the 
difference or similarity between two commodities ex- 



46 THE ECONOMICS OF SOCIALISM 

changed, is removed ; when hardness, softness, colour, shape, 
weight, size, &c, as well as social utility, are abstracted, 
they have still something left. A cheap suit of clothes 
and a quarter of wheat are about as different commodities 
as it is possible to imagine; yet at the time of writing 
(1921) they exchange, roughly, upon an equality on the 
London market. What, then, have the two wares in 
common ? Precisely that, and that alone, which appears in 
other similar cases. They are both the products of human 
labour. This circumstance, therefore, it is which enables 
them to be reduced to a common term, to be placed on a 
quantitative basis, and compared with one another. 
Human labour applied to their production and embodied in 
them is the basis and measure of the relation and exchange 
of these two, and other similar and dissimilar commodities. 

But again comes the question : what labour ? 

Here we have to enter upon a somewhat abstract investi- 
gation, and the mind of the ordinary Englishman in- 
stinctively shrinks from abstract disquisitions of any kind 
whatsoever. He wants something concrete, tangible, 
practical! It is useless to tell him that abstract inquiry 
lies at the bottom of nearly all the practical work done in 
the world: useless to point out that but for the abstract 
investigations of the old geometers into the properties of 
conic sections and the like, the art of navigation could never 
have attained anything approaching to its present stage 
of development: quite beside the mark to urge upon him 
that but for the abstract theories of atoms and volumes 
half of our present chemistry would still remain to be dis- 
covered. He may be silenced, but he is not convinced; 
and the abstract remains for him a nuisance to be ever 
avoided. Yet in this case the abstract cannot be escaped 
if we wish to understand. 



VALUE 47 

Labour itself has two sides to it. It is qualitative and 
quantitative. 

The qualitative side is easy to comprehend. To create 
value labour must be expended on producing things which 
are useful to the existing society. Shirts, coats, boots, iron 
fittings, ships, guns, &c, are all useful to-day. But obvi- 
ously the quality of the labour expended on making a shirt 
is very different from the quality of the labour needed to 
produce a gun. Both shirts and guns are manifestly 
products of human labour, the results of the expenditure 
of vital human energy in labour; but of human labour of 
quite a distinct quality. That is all plain sailing enough. 

But the quantitative side of labour, what does that 
mean? When, as we now commonly say, the value of 
commodities in exchange is determined by the quantity of 
labour relatively embodied in each of them, what is meant ? 
Here we arrive at the abstract part of the inquiry, which is 
not so easy to grasp. 

It is, therefore, necessary to begin at the very beginning. 
When two workers are engaged in producing two different 
articles such as shirts and guns, each of them is clearly 
exerting his own individual powers and is embodying in the 
product his own individual work. But something more 
is being done at the same time. Each worker is embodying 
in the commodities produced human labour on the average, 
and in the form of abstract, social human labour too. 
Each worker is expending his vital force as an individual, 
but he is creating value at the same time, as a social unit 
of a civilised society which in the main produces for ex- 
change. 

Let us consider this more closely. Two joiners set to 
work to make a cabinet. Here the quality of the labour 
is precisely the same. When finished, the two cabinets are 



48 THE ECONOMICS OF SOCIALISM 

exactly alike. It is impossible to tell the one from the 
other. But the one joiner has worked with old-fashioned 
tools and without any machinery, thus entailing the ex- 
penditure of a great deal of labour. The other has used 
all the most modern labour-saving appliances; and thus 
his cabinet, though as good in every respect as the other, 
has been constructed at the expenditure of half the quan- 
tity of labour. The first cabinet, therefore, made on old- 
fashioned lines, does, beyond all question, contain in 
itself the embodiment of twice the amount of individual 
labour that the second contains. Yet, both being equally 
well made, they have precisely the same exchange value in 
relation to other goods on the market. No purchaser, that 
is to say, cares a straw how the cabinets have been made: 
both are the same to him. If individual labour measured 
their exchange value, the first cabinet would be worth twice 
as much as the second. It is really of equal value. Conse- 
quently, it is clear that it is not individual labour which is 
the measure of value in this case, but the quantity of social 
necessary labour required to make each cabinet at the 
time they are offered for exchange. This comes behind 
both the joiners, while they are at work, and determines 
the value of their respective cabinets in exchange, without 
tlje slightest reference to the desire or convenience of the 
two workers themselves. 

Put in that way, the quality of the labour being identical, 
and the product precisely similar, it is easy enough to 
comprehend that the actual value in exchange of the two 
cabinets is dependent, not upon the quantity of labour 
embodied in them by either of the two men as individuals, 
but upon the general average social cost in abstract social 
human labour of producing a precisely similar cabinet. 
This relation of exchange can only be arrived at, as before 



VALUE 49 

stated, indirectly, by competition and by the higgling of 
the market. 

But change in the quality of the labour applied to and 
embodied in commodities by no means alters this truth. 
Two workers who are engaged on producing the most 
widely different commodities by the application to them, 
and embodiment in them, of their individual labour of 
totally distinct quality, do, nevertheless, in just the -same 
way as the two joiners, whose quality of labour was the 
same, embody in these dissimilar commodities a specific 
quantity of simple, abstract, social human labour. And 
this, and this alone, it is which enables the value in ex- 
change of these two different commodities to be measured 
relatively to one another and other commodities. 

In short, every individual worker, whatever may be 
the individual quality of his labour, embodies, at the same 
time that he applies his individual labour to the produc- 
tion of commodities a definite quantity of social human 
labour in the commodity which he is producing. 

Now we begin to understand what this quantitative 
labour which creates and measures value, what this simple, 
necessary, social human labour, in the abstract, really 
regard to any two given commodities, applies with equal 
force to the production and exchange of all commodities, 
means. For the same reasoning, that is used above in 
no matter how diverse their character may be. If, for in- 
stance, to take the example already cited, a cheap suit of 
clothes is worth a quarter of wheat: if, that is to say, a 
suit of clothes is of the same exchange value as a quarter 
of wheat, and they exchange as equal on the market, then 
this equality of exchange betokens that, different as the 
quality of labour is which is necessary to produce them, 
and different as are the commodities themselves when 



50 THE ECONOMICS OF SOCIALISM 

produced, they both represent, over and above their special 
peculiarities, the embodiment of the same quantity of 
socially necessary simple abstract human labour in the one 
as in the other. 

If, also, that equation is altered one way or the other, 
so that upon the average a quarter of wheat, for instance, 
is worth two suits instead of one, then it is clear that 
twice the quantity of this labour, this social labour, is 
embodied in the quarter of wheat that is embodied in the 
suit of clothes. 

Or, to put the matter the other way. If a machine is 
invented which enables a suit to be made with one-half the 
expenditure of labour that was formerly necessary, if the 
sort of labour of which I have spoken as needed for making 
the suit is, consequently, reduced by one-half; then only 
one-half the quantity of labour is embodied in the suit that 
was formerly contained in it; and, the quantity of labour 
embodied in the quarter of wheat, its cost of production is 
socially necessary, simple abstract human labour, that is, 
remaining unchanged, it takes two suits to afford an equiv- 
alent in exchange value for one quarter of wheat. Similar 
changes in the necessary amount of labour, whatever may be 
their proportions, produce the like change in the relative 
exchange value of the whole list of commodities affected. 

It is now still more clear what this quantitative labour 
is which measures the relative value of commodities in 
exchange. It is not the quantity of individual labour 
which is needed to produce each commodity : that may and 
does vary infinitely with reference to the production of 
precisely similar commodities. But it is the socially neces- 
sary labour embodied in them which measures their rela- 
tive value ; and this neither the individuals themselves, nor 
society at large, can directly test or measure in any way. 



VALUE 51 

Nobody, for example, can possibly tell how m<uch labour 
is embodied in a commodity by the time which any par- 
ticular individual has spent in producing it. 

There is not, and there cannot be to-day, any such thing 
as absolute value measured by time. All value is relative, 
and the value of commodities is not estimated by them- 
selves, but only relatively to and in other commodities. 
This relative value is arrived at, also, indirectly, by a 
social process, namely by exchange, the ratio of which ex- 
change is determined by the higgling of the market: the 
whole operation thus is social from first to last, equivalence 
being established on the average by the market dealings. 

But now that we have shown how simple social human 
labour in the abstract comes behind each and every indi- 
vidual labourer in every department of trade, and deter- 
mines the relative value of his individual product, in ex- 
change with other products, without his knowing it, or 
being able to tell the precise result beforehand, there is 
still something more to consider. Here again the analysis 
has been rendered more difficult by the endeavours to dis- 
cover an actual "unit of labour." The efforts thus made 
to arrive directly at estimates of value are equally foolish 
and confusing. There is, of course, in present conditions, 
no possible means of arriving at a definite, concrete, labour 
coin, so to say, which shall establish the value of commodi- 
ties when and as they are produced. The individual 
labour-time it may take to produce a commodity is, as we 
have seen, no test whatever of the length of social time 
necessary to produce the same commodity. 

Nevertheless, social labour-time does measure the value 
of commodities with reference relatively to one another. 

How is this done? 

Take the case of weight. What is weight? That we 



52 THE ECONOMICS OF SOCIALISM 

can only explain by concrete illustrations of heavy bodies. 
To state that it is ponderosity does not help us a bit. 
Yet we know well enough what weight is by itself. More- 
over, we weigh things relatively to their weight in other 
things. We say, for instance, that a bushel of wheat weighs 
60 lbs. Pounds of what? We arrive at the fact that 
there is a bushel of wheat, that is 60 lbs of wheat, in the 
scale, by balancing it against weights of iron or other 
metal. When the scale is level, equality is evidenced, and 
the weight on each side is declared to be the same: in 
this case 60 lbs. But what the unit of weight is, in the 
abstract, we can no more tell than we could before we 
weighed the wheat. 

In chemistry, likewise, the proportions in which various 
elements mix with one another were formerly stated in 
atoms, according to the theory which went by the name of 
the great chemist Dalton ; and in this way gases and other 
chemicals were measured and, in a sense, weighed for a 
long time. But what was the Daltonic atom? Nobody 
knew and nobody knows. Nowadays, in chemistry, we 
deal not with atoms but with volumes. Common air, salt, 
carbonic acid are expressed according to the relations of 
the volumes of the chemical constituents which compose 
them. But what is a volume in chemistry? It is just as 
impossible to say as what constituted an atom. None the 
less, though we do not know what they are — any more than 
we can express in figures — V~~i — volumes serve the pur- 
pose of a common measure of the most diverse chemical 
compounds. 

So it is with simple, abstract, social human labour. 
This labour measures for us the value in exchange of com- 
modities relatively to one another. If less of such labour 
is embodied in a commodity it becomes, on the average, of 



VALUE 53 

less value in exchange with respect to commodities which 
remain stationary in regard to the quantity of labour em- 
bodied in them. On the other hand, more labour embodied 
constitutes, on the average, more relative value. And this 
is true along the whole line of commodities. 

But here the objection is frequently urged that all this 
takes no account of skilled labour, and that if skilled 
labour, or rather the skilled labourer, is employed, he pro- 
duces much more value in exchange, in a given time, than 
an unskilled labourer will produce. That is true. But 
what, after all, does this mean ? It means only that skilled 
labour is complex or higher labour, forming of itself a 
multiple of simple labour. A highly-skilled chronometer- 
maker, for instance, produces more value in exchange in 
a day, a month, or a year than the most expert brick-maker 
in the like period. All the same, however, when the 
chronometer and the bricks come to be exchanged they are 
exchanged not on the basis of skilled labour embodied in 
them, but in proportion to the quantity of simple, social 
abstract human labour embodied in them. 

Again, labour itself has and can have no value. It only 
constitutes value when embodied in useful commodities. 
Labour as labour has no more value than weight as weight. 
If a man employs labourers at ten shillings a day, or at 
any other rate of wages, to dig holes and fill them up again, 
it needs no great power of mind to see that their labour 
has been embodied in no value, has been as we say, wasted. 
The labourers receive their wages, and are so much the 
better off; but their labour, individual or social, consti- 
tutes no value, and has no value when expeDded. And, but 
for the payment of wages, all the world would see that 
labour itself is destitute of value. It has and only can 
have value, as has been said, when embodied in useful 



54 THE ECONOMICS OF SOCIALISM 

articles. But, when embodied in such useful articles, it is 
the sole basis and measure of value. 

Thus the analysis has brought us round to the point 
where a full conception can be formed of what sort of 
human labour it is which measures the value of com- 
modities. 

The truth in relation to the theory of value is disguised 
from ordinary observers to-day by the phenomena of price. 
Everybody is so accustomed to look at the current market 
price, and to estimate the value of that which has been 
produced, or of that which they wish to buy or to sell, 
almost on the instant, by this price current, that what lies 
at the bottom of all the ups and downs of this special form 
of value is forgotten. 

Time was, (and is still in some parts of the world,) 
when the relations of exchange of all commodities to one 
another were expressed in some one commodity, and yet 
that one commodity was neither gold nor silver. Cowries, 
hides, salt, bullocks, iron, copper, have all performed, and 
some of them perform still, the function of a medium of 
exchange, as well as of a standard of value, in different 
parts of the world. They are used in this way because 
they are at one and the same time useful in the existing 
social conditions, and embody in themselves human labour. 

These commodities, however, alike as standards of value 
and as currency, are much too cumbrous for the needs of 
commerce. What is required when trade grows, and ex- 
change becomes the dominant factor in production, is 
something which in itself is useful ; which embodies a great 
deal of human labour in a small compass ; which can easily 
be divided up into fixed weights or quantities and recom- 
bined again without loss; which is not subject to rapid 
deterioration; and which, on the average, maintains its 



VALUE 55 

cost of production at nearly the same level over long 
periods. 

Now, all these qualities are possessed by gold and silver 
to a greater extent, on the whole, than anything else. Pri- 
marily, also, they are useful commodities, and abstract, 
simple human labour is embodied in the so-called precious 
metals, in 'just the same way as in other commodities. 
Moreover, they vary in value according to the ease or diffi- 
culty with which they are procured — that is, according 
to the amount of labour which enables them to be ob- 
tained, and is embodied in them. Scarcity in this case, as 
in nearly all others, simply means difficulty of attainment : 
the need for expending more labour, on the average, in 
order to obtain a definite quantity of gold or silver. Plenty 
betokens, on the other hand, ease of attainment ; the amount 
of labour required to bring to market a definite weight of 
gold or silver has become, on the average, less. 

Evidently, if diamonds could be made by mixing up 
cheap chemicals in a glass of water, the value of diamonds 
will approximate in the long run to the cost in human 
labour of the product of such a simple and easy process. 
Diamonds are costly because they embody to-day a great 
deal of human labour, by reason of the amount of such 
labour which is of necessity expended in procuring them 
in Brazil, South Africa, or elsewhere. They are subject, in 
fact, in the long run, to the laws which govern all other 
commodities. 

Just so with silver and gold. They are commodities, 
and can be used to measure the value of other commodities 
simply because they comprise in themselves the embodi- 
ment of a greater or less quantity of social human labour 
measured by time. They thus become the convenient ex- 
pression of the value of their fellow-commodities. But it 



56 THE ECONOMICS OF SOCIALISM 

must never be forgotten that as gold or silver measures 
the value of other commodities in the form of value which 
we know as price, so these other commodities themselves 
measure the value of the precious metals. Just as in all 
exchange every sale is a purchase, and every purchase a 
sale, according to the side from which it is viewed, so with 
gold and silver as measures of the value of other commodi- 
ties; these other commodities likewise measure their value 
— quantity of social human labour embodied being the 
basis of relation and comparison in every case. 

In addition to the conveniences briefly enumerated 
above, in using gold or silver as the standard of value, and 
then as currency, it is also to be noted that, as a rule, their 
own value fluctuates within narrow limits. The quantity 
of labour embodied in an ounce of gold has varied slowly. 
But there is nothing to prevent such fluctuations from be- 
coming much greater. Gold itself might become, weight 
for weight, as costly as diamonds, or, on the other hand, 
as cheap as iron. The same with silver. History, or tra- 
dition, even tells us of a moment when the Phoenicians 
used anchors of silver. 

Moreover, both gold and silver being themselves com- 
modities, and dependent for their value relatively to other 
commodities on the quantity of labour embodied in a defi- 
nite weight of each, the same rule applies to these two 
precious metals in relation to one another. Both may be 
simultaneously used as currency; but both cannot possibly 
be used at the same time as a standard of value for all other 
commodities. The cost of production is certaic to fluctuate 
between them, and the one precious metal will be, and 
must be, a commodity in respect to the other. Gold may 
be the better standard of value, or silver may be the better 
standard; but it is manifest that two commodities whose 



VALUE 57 

value varies the one with reference to the other cannot 
both constitute a standard of value, on a permanent basis, 
at the same time, no matter what laws may try to prescribe 
to the contrary. 

When, however, the value of all commodities, instead of 
being estimated in one another by barter, special higgling 
between individuals as buyers and sellers and so on, is 
fixed with reference to one special commodity, which in 
all wealthy countries to-day is gold, then this form of 
value assumes a particular aspect and is known as price. 
The quantity of social labour embodied in definite quanti- 
ties of the whole series of commodities — coats, hats, guns, 
bushels of wheat, diamonds, dozens of wine, &c, &c. — is 
expressed in a certain weight of gold, which itself repre- 
sents the same quantity of social labour as these quantities 
of commodities each and all severally do. And gold, itself, 
as it is dug from out of the earth, represents a corporeal 
embodiment of human labour, and can thus be used to 
measure the value of all other commodities. 

For convenience of currency it is divided into weights 
larger or smaller, and the stamp which the government 
places upon a sovereign or a twenty-dollar gold piece merely 
guarantees that it weighs so many grains of gold of such 
a degree of fineness. But this stamp, of course, adds no 
additional value whatever to the gold itself. That value 
is determined, as so often repeated, by the quantity of 
labour embodied in it and in the commodities, which it 
exchanges for, or purchases. 

The cost of production of gold, though it changes less 
than in many other things, does fluctuate considerably at 
times. Thus the great gold discoveries in California and 
Australia from 1849 to 1851 so materially affected the 
relative value of gold that its purchasing power, its ex- 



58 THE ECONOMICS OF SOCIALISM 

change ratio with respect to other commodities whose value 
remained stationary, fell greatly, and long and abstruse 
disquisitions were penned as to what might be the effect on 
trade and commerce of a permanent fall in the value of 
gold. The quantity of labour embodied in a given weight 
of gold having been reduced by the discovery of richer 
mines, the cost in labour of putting it upon the market, 
that is, having been greatly lessened, its equivalent value in 
other commodities became much smaller than it was before. 

From 1849 onwards for some years there was, conse- 
quently, an universal and continuous rise of prices in all 
gold-using countries, which gave a great, and at first sight 
what seemed likely to be a permanent, impetus to trade; 
producers calculating that, owing to this continuous rise, 
they would always be able to dispose of their commodities 
at a relatively higher price than they had been called upon 
to pay for their raw materials, labour-power, &c. What 
actually happened will be seen later and the reasons for 
their miscalculation given. But during the whole period 
of this rise in prices, due to the relative depreciation in 
the value of gold, commodities whose cost of production 
in social human labour remained stationary exhibited no 
change whatever in regard to their values in relation to 
one another. 

On the other hand, it is certain that, quite apart from 
the effects produced by the demonetisation of silver and 
the consequently increased demand for gold in certain 
European countries, the cost of production of gold has in- 
creased at times in comparison with its cost at another 
period. This had the effect, therefore, of enhancing the 
purchasing power of gold relatively to all other commodi- 
ties. Prices have then, in fact, fallen all along the line, 
and have fallen continuously, producing upon the mind 



VALUE 59 

the effect of a decrease of wealth, and, perhaps, to some 
extent, discouraging production. But in this instance, 
also, commodities whose cost of production in social human 
labour had remained stationary exchanged, relatively to one 
another, on the same level that they did before. 

Thus it appears that, according to the greater or less 
cost of obtaining gold, there will be a fall or a rise in values 
of other commodities as measured in gold; that is to say, 
there will be a fall or a rise in prices all around. But this 
does not mean a fall in the relative values of commodities 
to one another all round. That is an impossibility. A 
general fall in prices is a matter of common experience: 
a general fall in relative values nobody ever saw, or can 
ever see. 

It is scarcely necessary to say that all this has nothing 
to do with the so-called " value of money," as we read of 
it in the daily newspapers. That is only another instance 
of the confusion introduced by the use of the word " value " 
in different senses. "Value of money," as used in the 
money market, means that the interest which borrowers are 
willing to pay for the loan of sums of money for a fixed 
term is higher or lower. The purchasing power of gold 
may be very high indeed, and the " value of money," in the 
City sense, may be very low indeed. Or the purchasing 
power of gold may be very low indeed, and yet the " value 
of money," in the City sense, may be very high indeed. 
Very different considerations here come in. 

Two quotations from authors who wrote at a distance of 
two hundred years the one from the other will, though 
stating the matter in a completely abstract shape, help still 
further to illustrate the problem before us. 

Sir William Petty writes: "The earth is the mother 
and labour the father of all wealth." Belfort Bax says: 



ao THE ECONOMICS OF SOCIALISM 

" The earth is formless matter, arid value (in this case 
money) is matterless form, separated from its parent by 
the whole universe of commodities." 

Now, price is only the money-name for value. And the 
" matterless form " here spoken of is that quantitative, 
simple, abstract, social human labour, expressed in money, 
which measures the value of the universe of commodities 
in relation to one another. Just as an individual worker, 
while producing a commodity, creates at the same time a 
definite quantum of social labour-value, so a lump of gold, 
when produced, expresses a definite quantum of social 
labour-value. 

Let it be repeated once more that we cannot tell, by any 
process that it is possible to apply to-day, how much 
simple, abstract, social human labour is incorporated in a 
ton of iron, in a hat, in a dozen shirts, in a quarter of 
wheat, in an ounce of gold. There is no clue to this what- 
ever in the amount of individual labour that may be 
necessary to produce either of them in any particular case. 
The time occupied by any individual worker is no test. 
The lump of gold may vary in value in reference to other 
commodities. None the less, however, the quantity of 
labour incorporated is determined not actually, but rela- 
tively, in equivalence with definite quantities of other com- 
modities. This equivalence, and therefore the social mini- 
mum of time required for production, being determined by 
competition and the higgling of the market, and repre- 
sented in the money form by the day-to-day price. 

Gold, however, performs more than one duty in our 
society to-day. 

It measures the value of all commodities in social 
human labour, because it is itself "the socially recognised 
incarnation of human labour." In this respect it forms 



VALUE 61 

an actual standard of value for the whole universe of 
commodities exterior to itself. 

It acts as a standard of price by reason of the fact that 
"it is a fixed weight of metal." 

To quote Marx: 

" As the measure of value it serves to convert the values 
of all the manifold commodities into prices, into imaginary 
quantities of gold: as the standard of price it measures 
those quantities of gold. The measure of value measures 
commodities, considered as values: the standard of price 
measures, on the . contrary, quantities of gold by a unit 
quantity of gold, not the value of one quantity by the 
weight of another. In order to make gold a standard of 
price a certain weight must be fixed upon as the unit. . . . 
But only in so far as it is in itself a product of labour, and, 
therefore, potentially variable in value, can gold serve as a 
measure of value." 

In addition, and in consequence of this, gold serves as a 
medium of currency for the circulation of commodities. 
It likewise serves as a means of payment. And, in the 
form of bullion, gold is used as international money to 
balance international trade accounts and make international 
payments. 

In a society where goods should be produced for the 
general use, and labour was expended co-operatively, the 
whole problem of value would be turned round the other 
way. The question then would be : " How many hours of 
average toil will be needed to produce so many tons of 
iron, so many coats, so many hats, &c, as may be sufficient 
to supply all the wants of the community in respect of these 
different articles ? " When this was settled, and the goods 
were available, anyone who knew the figures could tell 
without any difficulty, not indirectly but directly, pre- 



62 THE ECONOMICS OF SOCIALISM 

cisely how much social labour, as measured by time, was 
incorporated in every useful article to be found in the 
communal stores. And each improvement in power of 
production would reduce the amount of social labour-time 
which it would be necessary to expend in order to produce 
any given article. 

But we are a long way from that point yet. Our com- 
modities, it is true, are produced for social use, into which 
they find their way by the route of exchange. But this 
production takes place under individual control, and with 
widely different tools, machines and appliances (whose 
power it is impossible for us to average) brought into play 
to make precisely similar articles. Consequently, the law 
by which the necessary average quantity of social human 
labour embodied constitutes value can only work indirectly 
and relatively, and makes its power felt at times in a very 
disturbing way. 

Now, in considering this problem of value, it will be 
observed that up to the present time nothing has been 
said about Supply and Demand, or Demand and Supply. 
Nevertheless, by a school of economists which once had 
considerable influence, the supply and demand theory of 
the value of commodities was held to solve every diffi- 
culty. The errors which thus arose are by no means wholly 
extirpated even to-day; though they appear in a new 
shape, girt in a modern dress of confusing terminology, and 
shielded from the light of truth by a huge panoply of in- 
applicable mathematical formulae. 

It must be admitted that the idea of supply and demand, 
as permanently regulating value in exchange, presents 
something very fascinating to the commonplace mind. 
The whole theory is so simple. There is nothing abstract 
or difficult of comprehension here. The facts adduced fit in 



VALUE 63 

with our every-day experience : the deductions drawn seem 
an inevitable consequence from the facts. 

Everybody knows, for instance, that there are frequently 
on the market more goods of a certain kind than the de- 
mand will cover at the old rate of exchange. When this 
is the case, to any considerable extent, the price of the par- 
ticular commodity thus over-supplied, and its relative value 
to all other commodities whose supply is regulated in ac- 
cordance with previous conditions, must fall, and does fall, 
often very heavily, more particularly if the article happens 
to be perishable. The sellers are anxious to dispose of 
their goods at some price. The buyers, soon finding out 
how matters stand, reduce their biddings, and so the value 
falls ; often out of all proportion to the extent of the over- 
supply, and not unfrequently even below the actual cost or 
price of production of the articles, which are sacrificed at 
what are called slaughter prices. For the time being, 
therefore, it is manifest that supply and demand have in 
such circumstances a crucial influence on relative value. 

Conversely, when there is a short supply of goods for 
which there is a brisk demand their value rises and again 
rises in many instances, as, for example, in the case of 
necessaries of life, out of all proportion to the diminution 
of the supply relatively to the demand. As in the former 
case cost of production, quantity of labour and the rest of 
it, is temporarily lost sight of. This time the buyers are 
as eager to buy as the sellers in the former case were 
eager to sell, and prices may rise to a phenomenal height. 
Here also it is manifest that, for the time being, demand 
and supply have a crucial influence on relative value. 

But for the time being only. These are merely inci- 
dents in the ups and downs of that blind individual compe- 
tition through which our present social system works to its 



64 THE ECONOMICS OF SOCIALISM 

end. Under present conditions both sellers and buyers, 
both producers and consumers, are creatures of the society 
around them. The producer must sell what he has pro- 
duced and the consumer must consume what his social 
position requires. On both sides of the transaction there 
is demand and on both sides likewise is supply. Saleable 
values on the one hand encounter and exchange for sale- 
able values on the other. 

But beneath all the temporary ups and downs the quan- 
tity of labour socially necessary to produce the articles 
exchanged regulates the permanent value in exchange. 
This is recognised, alike in theory and in practice, by every 
producer. He knows right well that what regulates the sale 
value of his commodity is the general cost of production in 
human labour of that commodity, and he is forced by com- 
petition to disregard temporary fluctuations in a constant 
effort to bring his own individual cost below the average 
level. 

But let us hear what Karl Marx, who has sometimes 
been accused of neglecting this side of the value problem, 
says on the matter: 

"Price is the money-name of the labour realised in a 
commodity. Hence the expression of the equivalence of 
a commodity with the sum of money constituting its price 
is a tautology, just as in general the expression of the rela- 
tive value of a commodity is a statement of the equivalence 
of two commodities. But although price, being the ex- 
ponent of the magnitude of a commodity's value, is the 
exponent of its exchange-ratio with money, it does not 
follow that the exponent of this exchange-ratio is neces- 
sarily the exponent of the magnitude of the commodity's 
value. Suppose two equal quantities of socially necessary 



VALUE 65 

labour to be respectively represented by 1 quarter of wheat, 
and £2 (nearly % oz. of gold), £2 is the expression in 
money of the magnitude of the value of the quarter of 
wheat, or is its price. If now circumstances allow of this 
price being raised to £3, or compel it to be reduced to £1, 
then although £1 and £3 may be too small or too great 
properly to express the magnitude of the wheat's value, 
nevertheless they are its price — for they are, in the first 
place, the form under which its value appears, i. e., money ; 
and, in the second place, the exponents of its exchange- 
ratio with money. If the conditions of production, in 
other words, if the productive power of labour remain con- 
stant, the same amount of social labour-time must, both 
before and after the change in price, be expended in the 
reproduction of a quarter of wheat. This circumstance 
depends neither on the will of the wheat producer nor on 
that of the owner of other commodities. 

"Magnitude of value expresses a relation of social pro- 
duction; it expresses the connection that necessarily exists 
between a certain article and the portion of the total labour- 
time of society required to produce it. As soon as magni- 
tude of value is converted into price, the above necessary 
relation takes the shape of a more or less accidental ex- 
change-ratio between a single commodity and another, the 
money commodity. But this exchange-ratio may express 
either the real magnitude of that commodity's value, or the 
quantity of gold deviating from that value, for which, ac- 
cording to circumstances, it may be parted with. The 
possibility, therefore, of quantitative incongruity between 
price and magnitude of value, or the deviation of the 
former from the latter, is inherent in the price-form itself. 
This is no defect, but, on the contrary, admirably adapts 



66 THE ECONOMICS OF SOCIALISM 

the price-form to a mode of production whose inherent laws 
impose themselves only as the mean of apparently lawless 
irregularities that compensate one another. 

"The price-form, however, is not only compatible with 
the possibility of a quantitative incongruity between magni- 
tude of value and price, i. e., between the former and its 
expression in money, but it may also conceal a qualitative 
inconsistency — so much so that although money is noth- 
ing but the value-form of commodities, price ceases alto- 
gether to express value. Objects that in themselves are no 
commodities, such as conscience, honour, etc., are capable 
of being offered for sale by their holders, and of thus ac- 
quiring, through their price, the form of commodities. 
Hence an object may have a price without having value. 
The price in that case is imaginary, like certain quantities 
in mathematics. On the other hand, the imaginary price- 
form may sometimes conceal either a direct or indirect 
real value-relation; for instance, the price of uncultivated 
land, which is without value, because no human labour has 
been incorporated in it. 

" Price, like relative value in general, expresses the value 
of a commodity (e. g., a ton of iron), by stating that a 
given quantity of the equivalent (e. g., an ounce of gold) 
is directly exchangeable for iron. But it by no means 
states the converse, that iron is directly exchangeable for 
gold." 

The meaning of this is surely quite clear. The fluctua- 
tions of price due to accidental conditions of the market 
average themselves over long periods, and the truth of the 
social labour theory of value manifests itself even through 
these very perturbations. 

But of course the majority of Professors of Political 
Economy do not see that the above analysis is correct. 



VALUE 67 

They call it "rubbish," with the illustrious Professor 
Flint; pass it by on the other side, while endeavouring to 
make use of the distinctions drawn by its author, like the 
still more illustrious Professor Alfred Marshall ; or imagine 
that they have entirely crushed it into insignificance when 
they point out that an oak has more value than an elm, 
in common with that most illustrious Professor Bohm- 
Bawerk ! 

To imagine that all this is really done in good faith is to 
flatter the honesty of these learned gentlemen at the ex- 
pense of their intelligence. But seeing that another well- 
known Professor actually argued with me at a public 
gathering against the social labour value theory on the 
ground that crinolines when out of fashion were of little 
value and were disposed of for next to nothing ; thus omit- 
ting to consider that when first in fashion they sold for 
many times their labour value — seeing, I say, that such 
mental carelessness as this passes muster for sound con- 
troversy even among the intelligent, it is indeed impossible 
to set a limit to the ignorance of the learned. 

What disguises from them the truth must, we may rea- 
sonably assume, be the difficulty already commented upon 
of apprehending the fact that it is social human labour 
which constitutes value and measures value according to 
the minimum of social labour time necessary, as deter- 
mined by competition and higgling of the market, to 
produce the various commodities in our present society. 
Once the meaning of this simple abstract necessary social 
human labour embodied to-day in commodities, under the 
social conditions of free competition, with individual con- 
trol and for individual exchange, is thoroughly grasped, 
the problem of value is solved and further analysis becomes 
possible. Then, too, the minor difficulty of fluctuations 



68 THE ECONOMICS OF SOCIALISM 

of value ceases to trouble the inquirer, who sees that, to 
use the common illustration, they affect the basis of value 
no more than the waves of the sea or an exceptionally high 
tide influence the general sea level. 

Simple abstract social human labour, to conclude with a 
last repetition, comes behind all individual producers and 
measures the value in exchange of their wares, as compared 
with and exchanged for other wares, quite without refer- 
ence to them: they themselves perform a social function 
and call into being a social measure of value, at the same 
time that they perform their individual tasks and exercise 
their individual skill and capacity. When this quantity of 
social labour value embodied in a commodity, instead of 
being expressed or represented in the relative social labour 
value of other commodities, is expressed, in common with 
these other commodities, in relation to one special commod- 
ity, gold, then value takes its money name and becomes 
price. But this is only because gold itself is subject to the 
same law of value as other commodities, and can be 
measured in the common term with them, namely, labour. 

This means, therefore, that all commodities which ap- 
pear on the market of the world for exchange are estimated 
relatively to one another as portions of the amount of 
necessary social labour exerted by human beings to pro- 
duce them — aliquot parts of the social labour day, or 
week, or month — measured by time. It matters not how 
or by whom the commodities are produced, with what tools 
they are fashioned, or in what scale of social development 
they first assume their final market shape. Whether raised 
or made by the highest skilled white labour with the best 
machinery in the United States; by civilised beings on a 
lower plane of economic development in Italy; by negroes 
in Africa ; by ryots in India ; or by coolies in China : once 



VALUE 69 

the products themselves are on the market they, other 
things being equal, lose every vestige of their origin, all 
trace of their particular environment, during production. 
They are simply incarnations of quantity of social labour 
in various shapes, and their relative value is so measured 
not directly by themselves but in one another. 
To sum up: 

1. All exchanges are upon the average conducted on an 
equality. 

2. The relative exchange value of articles of social use 
is measured wholly and solely by and through other articles 
of social use. The only value known to economics is this 
relative value. 

3. Value, thus denned, is measured by the quantity of 
simple, abstract, necessary social human labour embodied 
in the commodities exchanged: this social human labour 
comes behind the individual producers, whatever their 
natural advantages or disadvantages, their skill or lack 
of skill, and estimates the value of their respective 
products in terms of other commodities. 

4. Thus the value of goods is not arrived at .directly by 
the time it takes in special cases to produce them but 
indirectly in relation to other goods. And their value, 
their ratio of exchange in relation to other commodities, is 
determined by competition and higgling of the market : the 
minimum necessary labour time being thus arrived at not 
absolutely but relatively. 

5. The precious metals, and in our times gold more 
particularly, are used to estimate the value of other com- 
modities and as universal means of exchange, because they 
themselves, as useful social articles, contain incorporated 
in them a large quantity of social human labour in propor- 
tion to their bulk, and for other reasons of convenience. 



70 THE ECONOMICS OF SOCIALISM 

6. As commodities, whether ordinary wares or the pre- 
cious metals, exchange in relation to the quantity of simple, 
abstract necessary social human labour embodied in them, 
or which it costs to produce them, measured by time, it fol- 
lows that the value of commodities relatively to one another 
varies in proportion to the quantity of such labour em- 
bodied in them. If less labour is embodied in them, if it 
costs less labour to produce them, their value is less, other 
things remaining the same; if more labour is embodied in 
them, if it costs more labour to produce them, their value 
is greater. 

7. Gold is subject to precisely the same laws as other 
commodities in regard to its relative value. But the value 
of all other commodities on the markets of the world 
being now estimated with reference to gold, divided into 
special weights of that metal, the value of all those other 
commodities assumes a particular form with respect to 
gold, the universal commodity, and becomes price. Price 
being the gold-name or money-name for value. 

8. All prices may fall: all values cannot possibly fall. 

9. Supply and demand affect value and price locally and 
temporarily only. Underneath the ups and downs thus 
occasioned, the law of measurement of value in exchange 
by the quantity of simple, abstract, necessary social human 
labour works steadily on. 



CHAPTEK III 

SURPLUS VALUE 

Having arrived at a clear conception of what value in 
exchange is, and the measure of such value, we are in a 
position to go farther and examine how riches are accumu- 
lated, and whence they are derived, in our existing society, 
where the system of capitalist production prevails. 

Exchange means, on the whole, a transfer of equal values 
from one side to the other, and vice versa. In such an 
exchange there may be great advantage derived by both 
parties to the transaction, but there can be no profit to 
either. Neither side has possession of more value after 
the bargain is completed than it had before. Supposing 
it to be possible to barter directly a suit of clothes for a 
quarter of wheat, which represents roughly an equality on 
the London market to-day. The one side obtains a suit 
of clothes and the other side a quarter of wheat, and, by 
our assumption, each obtains what he wants: the former, 
garments, the latter the means of making bread. Not only 
are their social desires both mutually satisfied in this par- 
ticular regard, but, from the point of view of exchange 
value, each has obtained an equivalent, in social labour in- 
corporated in a commodity, in exchange for that which he 
has parted with. Manifestly there is no profit here, though 
both sides are benefited by the exchange, and, the articles 
being used in consumption, there is an end of the matter. 

Now, however, let us assume that the owner of the suit 
of clothes is ignorant as to the full value of his commodity, 

71 



73 THE ECONOMICS OF SOCIALISM 

and parts with it to the owner of the wheat for a bushel 
less than the quarter which he ought to obtain. The per- 
son who wanted a suit has obtained it at less than its 
market value; and the one who has parted with it is in 
possession of less food, to the extent of a bushel of wheat, 
than, on an equal exchange, he ought to have received. 
He is so much the poorer, therefore, and, having parted 
with his suit at less than its full value, that extra bushel 
of wheat will remain in the hands of its original possessor, 
in addition to the suit which he has acquired. But there is 
no increase of riches here, no accumulation of wealth, no 
amassing of surplus value. The suit and the quarter of 
wheat still remain the suit and the quarter of wheat, 
neither more nor less. 

The same applies all round. A smart trader may get an 
ounce of gold, or several pounds of indiarubber, in ex- 
change for a few showy machine-made clothes. He has 
good reason to congratulate himself. Nay, the ignorant 
savage, from his point of view, has perhaps made a good 
bargain; while the trader is by so much the richer man 
when he returns to Manchester. But we are still where we 
were before, from the point of view of economics. There 
were cheap cotton goods on the one side and gold or india- 
rubber on the other. The latter being made available for 
civilised society adds to the convenience of its wealthy 
members; but the savage when he comes to understand 
what his gold, or his indiarubber, represents as value in 
exchange, soon learns that he has been outwitted. He has 
lost: the smart trader has gained. But the total values 
are neither increased nor diminished. 

Unequal exchange, in a word, like equal exchange, 
creates no wealth. 

Nor does the use of money affect this truth in any way, 



SUKPLUS VALUE 73 

though it may and does serve, in some cases, to obscure it. 
Whether too high a price or too low a price is paid for a 
commodity — whether too much or too little money value 
is given in exchange for it — this only concerns the pur- 
chaser and the seller, in the same way as if the unequal 
exchange were made with another commodity, instead of 
with the universal equivalent, or exchange commodity, 
money itself. There were so many sovereigns, or gold 
dollars, on the one side, and so much of useful goods on 
the other. In whatever proportions they are exchanged 
there is no increase of wealth, and no possibility of greater 
social accumulation. Before as after the exchange there 
are the same number of sovereigns and the same quantity 
of goods. Money, used merely as a medium of exchange 
for equal or unequal values, of itself engenders no increase 
of wealth whatever. 

All this is so obvious that it would be quite needless to 
insist upon it, but for the fact that by uneducated people, as 
well as by those who ought to know better, it has often been 
assumed that riches are somehow created by the equal 
exchange of commodities. 

Now, when men and women worked as chattel slaves for 
their master, the great land and slave owner of antiquity, 
or when they worked as serfs for the feudal lord so many 
days in the week without payment, there could be no doubt 
as to the origin of the wealth which the Eoman noble, or 
the French seigneur, acquired. The slaves, as well as 
their product over and above their keep, both belonged to 
the great proprietor of ancient days, and the increase of his 
wealth was due wholly and solely to their labour. 

The produce of the serfs, too, when it went into the 
granaries or storehouses of that most superior person, the 
baron or abbot of old times, belonged to him, in like man- 



74 THE ECONOMICS OF SOCIALISM 

ner; and his wealth was increased in the same way, though 
now the serfs went with the land, instead of being bought 
and sold as loose .chattels. In both these cases there was, 
I say, no illusion whatever in regard to " organisation of 
labour/' "rent of ability," "invention or application of 
superior tools or machinery " as the cause of the wealth of 
the great man at the top. He took the useful things which 
his slaves or villeins made, or raised, or extracted from 
the mines, for him, allowing them to eat and drink and be 
clothed with just so much as rendered them efficient agents 
to provide him with what he wanted. 

There was no cant of beneficence, no pretence of "eco- 
nomic harmony/' about all this. The improvements in 
methods of production, such as were made, told, as a 
matter of course, to the advantage of the proprietor of the 
slaves and the land. 

To-day, however, in the great civilised nations of the 
world, there are neither slaves nor serfs left. All the 
workers are supposed to be free men — free and equal 
men in such countries as England and America. But free 
as they are in England, at any rate, all the great means 
and instruments of production and distribution, including 
the land, are in the possession of one class; and there is 
another class of perfectly free people whose drawback is 
that, practically speaking, they possess no property — 
excepting only one commodity. 

Such are the necessary and inevitable social conditions 
in which alone capital can become the dominant power in 
production. And the one object of the owners of capital 
is to obtain a profit by its employment : to realise by pro- 
duction of commodities all that they had before and some- 
thing more. 

But how does it come about that the capitalist class sue- 



SUBPLUS VALUE 75 

ceeds in making a profit? How is it that, with neither 
slaves nor serfs at command, members of this class contrive 
to pile up wealth to an extent which the greatest slave- 
owner or the most powerful baron could never reach? 
They cannot do it by equal or unequal exchange; for, as 
we have seen, these of themselves can engender no increase. 

Neither is it as compensation for risk run that society 
at large thus permits them to amass large fortunes. Indi- 
vidual capitalists run a risk, no doubt, by reason of the 
competition of other capitalists; but the whole class of 
capitalists runs no risk whatever. Their property in- 
creases as a class, irrespective of the bankruptcy and ruin 
of individuals of their class, as can easily be seen by com- 
paring the statistics of wealth in all civilised countries. 

The fact remains, therefore, that, without gain by ex- 
change, without compensation for risk, and, in numberless 
cases, without the slightest social service on their part — 
with far less of social service, indeed, than even a Lucullus 
rendered to Eome — they obtain vastly increased wealth. 

Now money itself only becomes active capital when it is 
used to buy raw materials, tools, machinery, coal, oil, and 
so forth for the purpose .of using them in production. 
All these are bought as commodities on the market at their 
market value. The completed product is sold afterwards, 
and the capitalist has realised a gain. He started with 
money to the amount of say, £100, and, after paying all 
expenses, he finds himself at the end of the transaction the 
happy possessor of £110. Whence comes this additional 
£10 in money, over and above his original £100? 

The capitalist has bought with his money the various 
commodities he needs for production, at their cost of pro- 
duction as expressed in simple, abstract, necessary social 
human labour embodied in those commodities. He still 



76 THE ECONOMICS OE SOCIALISM 

requires human energy to transform these commodities into 
the complete commodity in which he himself specially deals. 
He has no slaves — he would be shocked if anyone proposed 
to him to buy some; he controls no serfs — he thanks 
heaven that feudalism was swept away long before his 
day; but, conveniently for his operations, and without his 
having had any say in the matter, there stand just outside 
his factory door a crowd of men and women who are anx- 
ious, nay, eager, to place themselves at his disposal for a 
fixed time in return for agreed pay — that is all right : he 
rubs his hands at having to deal with genuine free people, 
instead of slaves or serfs, and in they go to work for him. 

But what is this last purchase the capitalist has made, 
and what is it that these free people so gladly sell to him? 

Here, again, it is necessary to enter into a brief abstract 
investigation. What is the one commodity, the sole prop- 
erty, which the free and enlightened citizens, who possess 
neither land nor capital, either as individuals or as a 
community, have to sell? The common answer is 
"labour." But, as we have already seen, clearly, labour 
has, of itself, no value at all. Labour has value only when 
embodied in useful commodities. The difficulties arise 
from a loose use of language. What the free human be- 
ings without property are so anxiously trying to sell is 
therefore not labour but their power to labour. This is 
the important commodity which they have to dispose of to 
the benevolent " organiser of labour " or " captain of in- 
dustry," who, in the course of his business, has only the 
decent desire to make a wholesome profit for himself. 

But power to labour, or labour-power, which means the 
capacity to embody simple, abstract, necessary social human 
labour in commodities, is by no means a good commodity 



SUEPLUS VALUE 77 

to have as one's sole exchangeable possession. This labour- 
power, though it be itself the sole- value-creating entity, is 
not a good commodity to deal in, I say. To begin with, 
it won't keep. Its owners, therefore, cannot hold it for 
any length of time for a better market. Its value depends 
upon the physical and mental vigour of its sellers, who 
must eat and drink adequately from day to day. If, con- 
sequently, they don't come to terms with some one or other 
of the capitalist class, hunger begins to tell its tale, and 
their labour-power loses at once a portion of its saleable 
value. 

But this commodity, this labour-power, though it is a 
function of the human being, exchanges on the average, 
like any other commodity, in relation to its cost of pro- 
duction. Moreover, it exchanges on an equality in that 
regard. Labour-power, therefore, exchanges, or is bought 
by the capitalist, on the same lines as he has bought all his 
other materials of production. That is to say, he buys 
labour-power as a commodity at its cost of production, as 
measured by the quantity of social human labour embodied 
in the food, raiment, house-room, fuel and other materials 
which go to create it and keep it in order without deteriora- 
tion. Labour-power, therefore, is bought at the cost of 
subsistence, or according to the standard of life, of the 
workers who sell it, which varies in different trades and in 
different countries, but always tends to approach the mere 
subsistence level. 

This is what their wages paid in money really represent : 
this and nothing more. And it is precisely this payment 
of their standard of life, or their cost of subsistence, in the 
shape of money-wages, which disguises from most of the 
vendors of labour-power, the workers namely, the whole 



78 THE ECONOMICS OF SOCIALISM 

scope of the transaction. " What should we do without the 
rich and the capitalists ? " is a phrase by no means confined 
to the educated and well-to-do. 

This labour-power, so bought as a commodity on the open 
market, at its cost of production, by payment of wages 
equivalent to the standard of life of the human machine 
that can expend and apply it, embodies more value, how- 
ever, in useful commodities, during the time of production, 
than it costs in wages. This is a very remarkable peculi- 
arity in the commodity, and it is the one from which the 
capitalist derives his profit. None of the other commodi- 
ties which he purchases, for the productive operation on 
which he is engaged, do anything for him in this way. 
But labour-power does. The capitalist here buys a com- 
modity which returns to him all the value he has parted 
with in the shape of wages, and a surplus value in addi- 
tion thereto. 

But, before examining more closely into the phenomena 
which accompany the creation and appropriation of this 
surplus value, let us see once more what labour-power and 
labour are. It is a remarkable fact that the truth to which 
our inquiry has conducted us can be verified in actual 
practice. We commonly speak of " cheap labour," as if, 
when low wages were paid, a really cheap article were al- 
ways purchased by the capitalist. But experience has 
shown that in cases where low wages mean that those who 
receive them have an inferior physique, or live on a lower 
scale of subsistence, there is often, or even as a rule, 
no real gain to the capitalist. The late Thomas Brassey, 
the contractor, discovered, as set forth by his son, that the 
cost of carrying out works in countries in which wages 
varied greatly was not very different, and that the prefer- 
ence, so far as profit to himself was concerned, was in 



SUEPLUS VALUE 79 

favour of those countries where the rate of wages was on 
the average highest. My friend, Mr. George Collins Levey, 
who has had buildings constructed in many different capi- 
tals, discovered that their cost was in all cases nearly the 
same, the cheapest being probably those set up in America 
where wages were highest. 

The Indian coolie, who is paid a ridiculously low rate 
of wages, gives in India no more than the value of those 
wages, in comparison with the more highly-remunerated 
work of the European. But the same Indian coolie in 
Demerara, where he lives on a higher scale, is a more 
valuable labourer than the more muscular negro. We can 
observe the like contrast in England. The agricultural 
labourer in Wiltshire and Dorsetshire, who used to get 
about 9s. to lis. a week, was of the same race as the Cum- 
berland hind who received as much as 18s. or 19s. a week. 
But a farmer who knew his business would rather have 
paid the latter man, with his higher standard of life, 
the higher wages than his fellow of the Southern counties 
the lower. He was a cheaper man at the money. 

Another illustration may be drawn from Texas. There 
a man I knew was once employing a number of American 
workers to do some more or less unskilled work at two 
dollars, or eight shillings and fourpence, a day. They 
struck for two dollars and a half, or ten shillings and 
sixpence, a day. There were some Italians unemployed at 
the time who were willing to take the job at a dollar a 
day. My acquaintance, who had theories on the subject 
of the quantity of labour embodied in relation to the 
standard of life, agreed to pay them a dollar and a half 
a day, on condition that he should supply them with, and 
they should eat, the same food as the American labourers 
who had left him. He told them further that as soon 



80 THE ECONOMICS OF SOCIALISM 

as they were worth two dollars a day, after the first six 
weeks' work, he would pay them at that rate. Within the 
six weeks, the Italians, as a whole, were doing nearly as 
good work as the Americans, and within two months all 
were being paid two dollars a day. They were well worth 
it to their employer, you may be sure, who was no phil- 
anthropist at all. 

The above examples all apply to what is known as " un- 
skilled labour," but similar illustrations can be drawn from 
the field of "skilled labour." In nearly every case the 
higher wages, accompanied as they are by a higher standard 
of life, represent a proportional, or more than proportional, 
quantitative embodiment of simple, abstract social human 
labour in commodities. 

This goes to show, therefore, that labour-power, selling 
or exchanging for wages, in relation to its cost of produc- 
tion or standard of life — the simple, abstract, necessary 
social human labour embodied in commodities — is no mere 
creature of the imagination but an actual force for the 
crystallisation of social human labour in commodities, un- 
der the most varying conditions of country, climate, race 
and rates of payment. 

To return to the purchase and sale of labour-power, 
and the surplus value thus created and appropriated by the 
capitalist. 

It matters not what branch of manufacture or produc- 
tion is taken, the analysis is the same. Cotton-mill, iron- 
works, mine, farm, they are, one and all, from the capital- 
ist point of view, not the means and instruments for cre- 
ating useful articles for the benefit of society but so many 
methods of obtaining profit. It is for this reason, and 
this reason alone, that, having capital in the form of 



SUEPLUS VALUE 81 

money in his possession, the capitalist buys his means of 
production, including that commodity without which all 
the rest would be of no avail — labour-power — and sends 
out his own completed commodity into circulation. In 
this way, and in this way alone, can his £100 which he 
has expended return with an additional £10 into his posses- 
sion. And this labour-power, as said, is purchased at its 
cost, as represented in the quantity of social labour in 
commodities necessary to ensure its owner's subsistence. 
Whatever this may represent on the market of the day 
in money value, that is the value of his labour-power: 
the value being arrived at, as with other commodities, not 
directly but indirectly, by way of exchange, and determined 
by competition on the market. 

Now, Marx supposes in the case he deals with that the 
value of the total daily cost of a labourer's subsistence is 
represented by an amount of food, fuel, raiment, house- 
room, etc., equal to what could be produced by half-a-day's 
social labour. And if, on the same assumption, six shil- 
lings in money is the equivalent of this half-a-day's social 
labour, then the cost of the reproduction of the labour- 
power purchased is six shillings. Consequently, the labour- 
power which the capitalist buys is well and truly paid for 
by six shillings a day. That is to say, the use of the 
labour-power of the labourer for a whole day is bought 
by the capitalist for the equivalent in money of half-a-day's 
social labour; and in paying this he has paid its full 
market value as a commodity. 

There is no mere assumption here. If we add up the 
total cost of a labourer's subsistence at the present time 
in social labour, which means, of course, the amount of 
social labour embodied in those things which are needed 



82 



THE ECONOMICS OF SOCIALISM 



to keep his labour-power in its normal condition, we shall 
discover that in the majority of cases they reach less than 
half-a-day's social labour. 

Moreover, the worker gives the capitalist credit for his 
commodity. He advances his labour-power to the monied 
man, only receiving his wages at the end of the day, week, 
or month, for which he engages to sell it at the agreed 
price. This fact, which we see verified all around us, and 
the fact already noted that labour-power itself cannot be 
kept in good order without immediate sale by its owner, 
show that the sole commodity owned by the workers is 
always sold at a disadvantage. This becomes still more ap- 
parent when an employer goes bankrupt and wages are 
not paid ; or when accident, or social causes, lead to a stop- 
page of trade. 

We have seen that in the ordinary business of capitalist 
production the capitalist buys all his materials at their 
market cost, the machinery, in the case of manufacture, 
being provided beforehand. His expenditure is thus di- 
vided : 



General 

Raw Materials 

Incidental Materials 

Wear and Tear of 
Tools and Machin- 
ery 

Coal 

Wages 

Farm 
Seed 
Manures 



Cotton Industry 

Cotton 

Oil, Gas, Packing, 
etc. 

Depreciation of Ma- 
chinery, Buildings 

Coal 



Iron Industry 
Iron Ore 
Fluxes 

Depreciation of Fur- 
naces, Mills, etc. 
Coal 
Wages 



Mines 
Here Raw Material 1 
Product 
Wear and Tear of Tools, Barns Wear and Tear of Tools 

and Horses Wages 

Wages 



also 



The product in each case, of course, sells on the average 



SURPLUS VALUE 83 

for all that it has cost and more. If this were not the 
case the capitalist would cease to produce, seeing that his 
object is simply and solely to make profit for himself. 
When profit ceases he does, in actual experience, cease to 
produce, regardless of the interests of others. 

When, therefore, the capitalist buys labour-power he 
does so because it comprises that most convenient property 
for him that, when expended in his service, it adds more 
value to the commodity than its own cost of production. 
The assumption, in the case taken for an example, is that 
the cost of the labourer's subsistence is half-a-day's social 
labour, or in money-value six shillings. This is the sum 
for which he sells his labour-power to the capitalist. 

But he sells his labour-power not for half-a-day, or four 
hours, but for a whole day, or eight hours. Consequently, 
after the wage-earner has returned to his employer the full 
value of his wages in the shape of labour embodied in 
useful commodities during the first four hours of his day's 
work he continues to toil for another four hours which 
gives an equal amount of value, or six shillings' worth in 
money ; this the employer takes and divides up with others. 
That is an example of how surplus value is obtained, and 
the four hours of work over and above the wage-earner's 
wage constitutes so much unpaid labour — labour, that is, 
which the worker is bound by his agreement to embody in 
commodities for his employer but for which he himself 
receives nothing. 

This surplus value, however, is embodied in the surplus 
of commodity-value produced, and is in the possession of 
the capitalist before it is exchanged (with the rest of the 
product) and converted into money. 

Obviously, the same applies in the like manner to a 
seven-hour day, or a six-hour day. If the value of the 



84 THE ECONOMICS OF SOCIALISM 

wage-earner's standard of life is represented by half-a- 
day's social labour, then, manifestly, he works in each 
case three-and-a-half hours, or three hours, for which he 
receives no payment. And out of this surplus value so 
extracted, this unpaid labour so obtained, embodied in 
goods for exchange, the landlord, the income-receiver, the 
commission-agent, the profit-monger, the banks and so on, 
all obtain their share. Not, however, that the amount of 
surplus value relatively to wages, or of unpaid to paid 
labour, is generally so small as this. On the average, the 
rate of unpaid to paid labour in a country such as Eng- 
land is nearer two or three to one, than one to one as in 
the above illustration. That is to say, the worker, for 
every hour he works for himself, works two or three hours 
for the benefit of other people, who may or may not do 
any useful social work at all. 

One day, in the first year or two of the movement here, 
I was lecturing on this special point to a working-man's 
Eadical club in London. Many present scarcely followed 
the argument, and some of the criticism was silly enough. 
But, by-and-by, there arose a man who threw some light 
on the discussion. "To me," said he, "the whole thing 
is clear enough. I am a worker in iron. Iron comes into 
our shop at 3s. the cwt. I myself receive 6s. a day as my 
wages. After I have worked on the iron with the machin- 
ery at my disposal for half-a-day, what comes into the 
works at 3s. a cwt. goes out at a sale price of £1 the cwt., 
sometimes more, sometimes less. Put what you please 
down for wear and tear of machinery, coal, oil, lighting, 
&c, it is evident that the difference of 14s. between what 
the iron costs in wages and raw material, namely, 6s., and 
the price realised, that is £1, leaves a fine surplus value 



SURPLUS VALUE 85 

for somebody. I for one shall see more plainly in future 
how my labour is filched from me/ 5 

This, indeed, is no exceptional case; for, making all 
possible allowance for incidental materials, wear and tear 
and so on, the cost of the cwt. of finished iron to the 
employer could not have been more than 8s. all told. 
Here, therefore, the surplus value would be twelve shillings, 
and the rate of unpaid to paid labour as 12 to 3, or just 
4 to 1. Consequently, the worker was day by day doing 
four strokes of work for others against one for himself, 
or for every hour he worked for himself he worked four 
for others. 

Now there are three ways in which the amount of surplus 
value extracted from the workers may be enlarged by the 
capitalist : 

1. By increasing the actual number of hours that the 
worker toils. Clearly, assuming that the work done is 
equally good — as it is, up to a certain point — and that 
the capitalist is quite indifferent to the health of his wage- 
earner, as he nearly always is, knowing that there are 
plenty more where he came from: on these assumptions 
and within certain limits, the longer the hours, the greater 
the quantity of unpaid labour, the larger the amount of 
surplus value obtained by the employer. Thus, if the 
wage-earner replaces the cost of subsistence as represented 
by his wages by working half-a-day, when the day's work 
is eight hours, the employer gains four hours of unpaid 
labour for the services which he renders as an organiser of 
labour ; he himself, that is, and those who take under him. 
But now let him extend the day's work from eight to nine 
hours, and he appropriates five hours of unpaid labour in- 
stead of four. Let him protract the day's work still fur- 



86 THE ECONOMICS OF SOCIALISM 

ther to ten hours, and he has six hours of unpaid labour to 
the good instead of either five or four. 

Consequently, all through the capitalist period, it is 
found that employers have been invariably anxious to in- 
crease the number of hours in the working-days ; and have 
bitterly resented any attempt to restrict the hours as an 
injustice not only to themselves, but to the community at 
large. Such extension of the hours of labour is, within 
certain limitations, an absolute increase of surplus value 
in every case. 

2. But there is another way in which the same result 
may be brought about. The result, namely, that the quan- 
tity of unpaid labour appropriated by the capitalist is in- 
creased in comparison with the paid labour of the wage- 
earner. This is by the reduction of the cost of his stand- 
ard of life, as measured by the amount of social labour 
necessary to produce it or embodied in it. Which again is 
to express the reduction of its money-value. For example, 
the standard of life for a particular section of wage- 
earners is represented by, say, six shillings a day. Let us 
now suppose that bread, bacon, clothing, rent, &c, fall 
to such an extent that five shillings will purchase as much 
as six shillings did a little while before. Then, competi- 
tion and other circumstances remaining the same, the 
workers will be as content with five shillings a day as they 
were previously with six shillings. The cost of production 
of their labour-power has fallen to that level, and competi- 
tion will bring down their wages in like manner. Con- 
sequently, in this case, the employer who before got four 
hours unpaid labour out of a total labour day of eight 
hours, the worker replacing his wages in four hours out 
of the eight — this same employer, I say, will now ap- 
propriate upwards of four-and-a-half hours of unpaid la- 



SUKPLUS VALUE 87 

bour instead of four, seeing that the worker replaces his 
five shillings in wages in the first three-and-a-half hours' 
work instead of four. 

This was the reason, and not any philanthropic motive, 
which induced the capitalists of Great Britain to agitate 
so desperately for free-trade in food-stuffs as against the 
cry of the advanced Chartists for nationalisation of land 
and machinery. Cheaper food meant and means additional 
hours of unpaid labour to the employers of Lancashire and 
Yorkshire. The other incidental advantages of free trade 
they cared nothing about. 

3. The third manner in which surplus value may be 
and is increased is purely relative. That is to say, the 
number of hours worked remaining the same, and the 
standard of life or wages continuing unaltered, a change 
in the conditions of labour may bring about the same 
pleasing result, in the shape of increased surplus value, 
to the capitalist. This means that the rapidity and effi- 
ciency of the machinery is increased, and more work is thus 
compressed into the same number of hours. Suppose, now, 
that the day's wages remain at six shillings, but the speed 
of the machinery is increased fifty per cent. What hap- 
pens? This: that it only takes the worker two-thirds of 
the number of hours that it did before to replace the 
value of his wages. Taking the day's work still at eight 
hours; instead of four hours being required to replace 
the worker's wages, two and two-third hours only are 
needed to do this, and the capitalist takes more than five 
hours of unpaid labour out of the eight instead of four. 

Such intensification of labour by improved machinery, 
like the extension of the working-day, can only be carried 
on, profitably to the employer, up to a certain point. Be- 
yond that point exhaustion of the " hands " begins, and the 



88 THE ECONOMICS OF SOCIALISM 

capitalist loses in breakages and bad output what he ap- 
parently gains by greater speed. 

It is needless to speak here of adulteration and short 
measure, as a means of increasing surplus value. That is, 
of course, merely a common fraud, which, though con- 
sidered by capitalists of the highest moral character only 
" a legitimate form of competition," is no better than 
cheating at cards, uttering false coin or bank-notes, forg- 
ing cheques, or any other kind of recognised, but illegal, 
swindling. That nearly all goods produced for profit to- 
day should be adulterated is a measure of the utility of 
the capitalist system of production. With its morality I 
have nothing to do. 

Labour-power is thus, as we have seen, sold like other 
commodities on the market, its value being regulated, 
similarly to theirs, by the amount of social labour em- 
bodied in the cost of its production, which in this case 
is the total subsistence of its possessor. Moreover, the 
value of labour-power is also determined not directly but 
indirectly, and the equivalence of the exchange is arrived 
at by competition and the higgling of the market. 

Hence, though the value of labour-power to its possessor 
is settled in its respective grades by the cost of produc- 
tion, it is also subject to fluctuations — that is, wages in 
the same trade may rise or fall — according to the supply 
or demand of this special value-creating commodity at 
different times. 

It is the special object of trade unions to maintain the 
rate of wages in each trade, whatever may happen, at such 
a level that, when in employment, the worker is at least 
sure of getting a decent subsistence. But, in spite of all 
their efforts, the influence of this cause in determining 
wages is severely felt. Ever since the capitalist method 



STJKPLUS VALUE 89 

of production became dominant, and even for some time 
previously, as the system of production for profit gained 
strength, a large fringe of unemployed, or casual, labour 
has been an inevitable necessity. The ups and downs of 
trade, the causes of which I shall examine later; the con- 
tinuous introduction of improved machinery and chemical 
inventions, lessening the number of " hands " needed to 
produce a given amount of commodities, — have resulted in 
an almost permanent over-supply of labour-power on offer 
in all civilised countries, save during periods of excep- 
tional prosperity. 

As a result, there is frequently weighing upon this par- 
ticular market a mass of more or less dimensions of un- 
sold labour-power, ready to be absorbed in periods of 
great inflation for the profit of the capitalist class, but 
thrown out again into worklessness and starvation for its 
owners on the first recurrence of stagnation. All the phe- 
nomena of demand and supply in relation to other com- 
modities, glut and scarcity, low prices and high, are to be 
seen in relation to labour-power: the only difference being 
that this commodity happens to be incorporated in flesh- 
and-blood, which, as before remarked, makes the necessity 
for its daily sale by so much the more pressing. 

Eeference has been made above to the relation which 
paid labour bears to unpaid labour in one or two special 
cases, and how changes are made in favour of the capitalist 
without any important alteration in the method of pro- 
duction itself. Now, in producing any manufactured com- 
modity, it appears that there are generally the following 
necessary constituents to be bought and expended by the 
capitalist: raw materials, incidental materials, and, lastty, 
labour-power. To these must be added the wear-and-tear 
and deterioration of machinery: such deterioration being 



90 THE ECONOMICS OF SOCIALISM 

due, not merely to time and use, but to relative inferiority, 
owing to the introduction of better machines of which 
account must be taken. 

The value of raw materials, however, as value, neither 
increases nor diminishes during the course of the manufac- 
turing process. 

The value, the social labour value, that is, embodied in 
the raw cotton, wool, leather, iron or other material bought 
by the capitalist on the market reappears as the same value 
and no more in the finished commodity. It is a constant 
quantity throughout the whole process from first to last. 

The value of the incidental materials likewise makes its 
appearance again in the finished commodity, neither in- 
creasing nor diminishing in value during the operation. 
The value of the oil, gas, coal, etc., used up in manufactur- 
ing the raw materials is embodied at their cost in the 
finished commodity. So much and no more. 

So, also, with the value of the machinery: this finds its 
way, whether in ten years, fifteen years, or more, into the 
commodities, but of itself creates no additional value what- 
ever during the process. The wear-and-tear reckoned at, 
say, 10 per cent., represents the gradual incorporation of 
the value of the machinery in the finished product. But 
this, too, is a constant value, which neither expands nor 
contracts during the period of its absorption in the com- 
modities produced. 

All these three portions of the total value may there- 
fore be classed as constant capital: that portion of the 
capital, namely, whose value remains the same at the end 
of the process that it did at the beginning. With the 
cotton, the wool, the iron, the leather, the form is changed; 
but the value of the raw material, to start with, remains 
the value of the raw material in the finished commodity 



SURPLUS VALUE 91 

— in the yarn, or the cloth, or the boots, or the finished 
iron. 

But now, lastly, we come to the labour-power purchased. 
Here the case is different. Not only does the value of the 
labour-power, its cost in wages to the capitalist, appear in 
the finished commodity, but an additional value as well. 
This particular material, labour-power, does, in function- 
ing, give off to the finished commodity more value during 
the process of production than its cost, to start with, rep- 
resents. It is not a constant but a variable form of the 
capital employed. It reproduces its own value and a sur- 
plus value as well, which costs the original seller of the 
labour-power toil and expenditure of vitality, but costs the 
capitalist nothing. 

Splitting up any finished commodity into its component 
parts or value, we have, therefore: 

Constant Capital — The value of raw materials, inci- 
dental materials, wear-and-tear, etc. 

Variable Capital — Wages paid to work-people. 

Surplus Value — The value added during process of 
manufacture by the unpaid labour of the workers, 
after they have replaced their wages by labour-value 
embodied in the commodities which they produce. 

I give Marx's own illustration of how this works out in 
relation to a cotton factory, although the figures are very 
different indeed from those of to-day : 

" First, we will take the case of a spinning mill con- 
taining 10,000 mule spindles, spinning No. 32 yarn from 
American cotton, and producing 1 pound of yarn weekly 
per spindle. We assume the waste to be 6 per cent. 
Under these circumstances 10,600 pounds of cotton are 



92 THE ECONOMICS OF SOCIALISM 

consumed weekly, of which 600 pounds go to waste. The 
price of the cotton in April, 1871, was 7%d. per pound; 
the raw material, therefore, costs in round numbers £342. 
The 10,000 spindles, including preparation-machinery and 
motive-power, cost, we will assume, £1 per spindle, amount- 
ing to a total of £10,000. The wear-and-tear we put at 
10 per cent., or £1,000 yearly — equal to £20 weekly. 
The rent of the building we suppose to be £300 a year, 
or £6 a week. Coal consumed (for 100 horse-power indi- 
cated, at 4 pounds of coal per horse-power per hour during 
60 hours, and inclusive of that consumed in heating the 
mill), 11 tons a week at 8s. 6d. a ton, amounts to about 
£41/2 a week ; gas, £1 a week ; oil, etc., £4% a week. Total 
cost of the above auxiliary materials £10 weekly. There- 
fore, the constant portion of the value of the week's prod- 
uct is £378. Wages amount to £52 a week. The price of 
the yarn is 12 1 / 4d. per pound, which gives for the value of 
10,000 pounds the sum of £510. The surplus value is 
therefore, in this case, £510 — £430 = £80. We put the 
constant part of the value of the product = 0, as it plays 
no part in the creation of value. There remains £132 as 
the weekly value created, which = £52 var. £80 surpl. 
The rate of surplus-value is, therefore, 8 %2 = 153 n /i3 per 
cent. In a working-day of 10 hours with average labour 
the result is: necessary labour = 3% hours, and surplus 
labour = 6%3." 

When once this division of industrial capital into con- 
stant capital, variable capital and surplus value is grasped, 
the second great step is taken in the analysis of the capital- 
ist system. It is indeed easy to apply the formula in all 
trades. The only portion of the theory which is at all 
difficult to understand, by those who have already mastered 
what value is, consists in the manner in which machinery 



SUKPLUS VALUE 93 

contributes its share of value to the product. Improved 
machinery so obviously enables its possessor to get the 
better of competitors, in the rough-and-tumble of mer- 
cantile strife, that many think the new machinery itself 
contributes greater value to the commodity than the old 
appliances. Of course, precisely the opposite is true. I 
mean that improved machinery, by enabling commodities 
to be produced with a less expenditure of social human 
labour than was previously necessary, tends to reduce the 
relative value of similar commodities put on the market, 
with the aid of this machinery, or without it, below the 
former level. 

The only value which the machinery adds to the com- 
modity during the process of manufacture is, therefore, 
as said above, the value of its own deperishment, with the 
cost of repairs and so on. This does not take place all at 
once, but is spread over a term of years. So that a large 
portion of the value of machinery, which has been for 
any length of time in use, is actually circulating in the 
form of commodities, or has been worn out, with the wear- 
ing-out, or consumption, of those commodities, although 
the machinery itself may still be clanking away in its old 
habitation to the old familiar tune. The actual physical 
deterioration, in addition to its moral and mater.'..,, deteri- 
oration, relatively to other still better machinery since 
introduced, has been represented in the exchange value of 
the commodities as they were thrown upon the market. 
True, its form is fixed, but its spirit — in the shape of its 
value — has to some extent flitted away, and has gone into 
the commodities which it has been partly instrumental in 
producing. 

The machinery itself and all the improvements which 
can be made in it are also directly social products. But 



94 THE ECONOMICS OF SOCIALISM 

for the work, the discoveries, the inventions of countless 
generations of human beings, not a single improvement of 
the many on which our present society plumes itself could 
have been made. Nay, more, unless society were in a con- 
dition to take advantage of the modification in the method 
the improvement would itself be useless. Steam, elec- 
tricity, artificial manure, automatic machinery, machine- 
making machines are all of them as much social products 
as the commodities produced with a view to profit and 
placed upon the market for exchange. 

The private ownership of capital, in the shape of the 
means and instruments of production and distribution is 
also, as we have seen, as much the result of a long series 
of historic and economic developments as the private 
ownership of the soil. These developments have resulted 
in an intricate network of social conventions, based upon 
class appropriation and ownership, by reason of which the 
members of certain classes possess everything as individuals, 
and the members of the other, the wage-earning class, 
possess nothing but their labour-power. This social cleav- 
age once effected, all the discoveries, inventions and im- 
provements, no matter by whom they were made, go into 
the possession not of the community but of the capitalist 
class. They belong, henceforth, to individuals or groups 
of that class, to the exclusion of the working-class alto- 
gether. This has been going on for so long that the ar- 
rangement seems not only legal, which the dominant class 
has taken good care to make it, but natural, proper and 
inevitable. These discoveries, inventions and improve- 
ments, therefore, become the property of the purchasers of 
labour-power, and are used by them against those who own 
this labour-power as their sole available commodity. 

The capitalists use this advance of society, due to in- 



SUKPLUS VALUE 95 

dividuals who are themselves the product of that society, 
and who owe their faculties to their begettings and sur- 
roundings from birth, to repress the demand of the work- 
ers for better conditions of life; at the same time that, 
in the majority of cases they take good care to deprive even 
the discoverers and inventors of any considerable share of 
the profits reaped by their aid. Thus it comes about, for 
example, that when the wage-earners, owing to any cause, 
obtain some considerable increase of their wages, involv- 
ing a rise in their standard of life, labour-saving machines, 
or inventions, are adopted which render superfluous a cer- 
tain number of the workers, and turn them into necessitous 
competitors for employment with those who still remain 
at work. 

Such improvements in our progressive society are al- 
ways at hand and awaiting acceptance by the dominant 
class of our day. But the object of that class is not to 
save expenditure of labour, not to produce more useful 
articles with less of toil for the working community. Not 
at all. Their sole and only object is to increase the quan- 
tity of labour-value which they can appropriate without 
paying for it: to enhance their total profit, that is to say. 
Consequently, if wages are sufficiently low in proportion to 
the total labour- value produced in any department of in- 
dustry to satisfy the capitalist class engaged in that trade, 
no employer will think of "locking up his capital " in 
improved machinery. He prefers the simpler plan of ex- 
torting surplus value out of the underpaid hands at his 
command. In this he may calculate correctly enough, 
seeing that his sole end and aim, like that of other em- 
ployers, is not to save labour, or to economise toil, but to 
save wages and economise his own individual expenditure: 
this as compared with the amount of commodities or in- 



96 THE ECONOMICS OF SOCIALISM 

corporated social labour-value which he appropriates, leav- 
ing so much more surplus value to him. 

Hence it happens that the capitalist system of produc- 
tion, in its greed for surplus value, not unfrequently heads 
back progress. And we have seen, in such examples as the 
nail-makers of Cradley Heath, the brickmakers of Staf- 
fordshire, and elsewhere, the using of women to tug barges 
along canals, that the introduction of improved machinery 
is positively fought against and resisted by the extremely 
low wages paid, the long hours worked, and the using up 
of the workers as mere food for profit-making. 

Now, if surplus value were extracted only out of grown 
men, the resistance which might be experienced would tend 
at times to become dangerous. But capitalist arrange- 
ments at first made full provision against that. During 
the period of the complete and unrestrained domination of 
the profit-making system, women and children were brought 
in to aid improved machinery in keeping the demands of 
the workers within what employers chose to consider were 
reasonable limits — limits, namely, that coincided with 
what they regarded as the appropriation by themselves of 
satisfactory quantities of surplus value. 

But the effect of the introduction of women's and chil- 
dren's labour-power into the market in competition with 
that of the men was two-fold. In the first place, they 
were more docile and less apt — in the case of the chil- 
dren, practically unable — to complain of excessive toil; 
thus affording to the capitalist a supply of his most im- 
portant commodity under exceedingly favourable condi- 
tions for him. 

In the second place, the employer was in this way pro- 
vided with the most convenient engine of competition to 
keep down his wages-sheet that could possibly be. For, 



SURPLUS VALUE 97 

under the law which regulates the rate of wages, or stand- 
ard of life, in any trade, a man earns the usual wage in that 
trade; such wage being taken to cover his own subsistence 
and that of his family. But when his wife and children 
are brought into the market also, with their labour-power 
likewise pressed for sale, then competition reduces the 
average wage of the whole family to the point which would 
have been the wage of the man alone. 

Thus, apart altogether from the mischief done to the 
community by the overwork of women and children — 
mischief going on at this day, and by no means wholly 
remedied, as some think, by the Factory Acts — apart 
from this, I say, a man's foes become literally they of his 
own household. Although, of course, this was not dis- 
cerned at first, and too often is not seen now by the work- 
ers themselves. Yet, whether they see it or not, the more 
strict organisation of labour, which the capitalist class has 
been and is thus able to secure, and the increased compe- 
tition arising from this cause, tend to depress the eco- 
nomic status of the men, in spite of the apparent gain of 
the wife's and children's wages at the end of the week. 

Throughout all this period of perfect personal freedom, 
which, as will be seen here and later, it is so difficult to 
distinguish from competitive anarchy, the labourer uses 
his labour-power as a commodity to be exchanged like any 
other commodity, at the cost of the quantity of labour em- 
bodied in its production — food, clothing, house-room, &c. 

To the capitalist engaged in the process of production 
this same labour-power represents only one of the elements 
of the productive process, and is that one of those ele- 
ments out of which he squeezes his surplus value : the mar- 
gin of value from which he derives his own personal profit 
after dividing with others who participate. 



98 THE ECONOMICS OF SOCIALISM 

Here we can see at once how absurd it is of Adam Smith, 
and those who follow him, to speak of the wage of the 
labourer as part of the income derived from production, the 
share of the labourer in the joint work with his partner 
the capitalist. It is nothing of the sort. The labourer's 
wage is the purchase consideration paid for the labourer's 
sole and only commodity, labour-power, without which the 
employer would be wholly unable to make his capital 
fructify and engender surplus value. Adam Smith him- 
self, in a way, contradicts his own statement when, else- 
where, he declares that employers are in a continual con- 
spiracy to keep down the rate of wages. 

Out of this surplus value and its concomitant arrange- 
ments a bitter class antagonism necessarily springs. 
From the earliest days of the development of machinery, 
and more especially during the period of the growth of 
the great factory industry, the workers were conscious that 
these new powers were being used to render them more de- 
pendent upon the dominant class, to shake the continuity 
and security of their employment, and to reduce the rate 
of wages in all well-paid employments — such as that of 
the weavers prior to the introduction of the power-loom. 
But, unfortunately, they attacked, in many cases, the ma- 
chines themselves, or struck against their employers at 
great disadvantage. The class war brought about by eco- 
nomic causes existed still, and possessors of the labour- 
power which the capitalist was compelled to buy were 
continuously at the mercy of the owners of the means and 
instruments of production. 

By slow degrees, conscious interference took the place of 
unconscious revolt, not with a view to reduce the quantity 
of surplus value appropriated by the capitalist class, but on 



SUEPLUS VALUE 99 

ethical grounds and in order to save the people from per- 
manent deterioration. 

Nevertheless, protection of women and children has so 
far been quite half-hearted; shorter hours have been ac- 
cepted more because it is not economical with the best 
machinery to work longer, and because of the growing 
power of working-class combinations, than from any con- 
sideration for the well-being of the hands. To-day as 
throughout its history capital has no ethic. It accepts 
sullenly and after bitter resistance any restriction whatever 
upon its inherent right to buy in the cheapest and sell in the 
dearest market, irrespective of any consideration other than 
pecuniary gain. That labour-power happens to be em- 
bodied in human creatures, and cannot be bought without 
taking them over at the same time, is for the capitalists 
an inconvenient accident. 

It is clear that to the workers as a class it is of little 
importance how the amount paid to them for subsistence 
is divided up. No doubt, it made a great deal of differ- 
ence to the individual worker and to his wife and family 
whether the wages coming in at the end of the week were 
represented by the sum of 9s. or 10s. formerly paid to the 
agricultural labourer of Dorsetshire or Wiltshire for his 
hard but inefficient toil; or whether they were represented 
by the sum of 30s. to 50s. paid to the stalwart navvy, or 
gas worker, or engineer, or skilled compositor, or electrician 
for their vigorous toil or highly-trained manipulation. So 
far the late Mr. Cliffe Leslie, who paid special attention 
to the grouping of workers in the scale of payments, was 
quite right when he wrote to me many years ago that 
"averages in such matters are quite unscientific and illu- 
sory." 



100 THE ECONOMICS OF SOCIALISM 

To strike an average between such rates of payment as 
those given above, and take that as the average wage of 
the English worker, would be absurd indeed, if it were 
proposed in that way to give an accurate idea of the posi- 
tion of the working community in these islands. But 
from the point of view of the workers as a whole, though 
some are much better off than others, they are so only as 
the slaves of ancient days, who were specially useful in 
contributing to the immediate luxuries or vices of their 
masters, were better-fed, clothed and lodged than the 
wretches who were flogged at their daily tasks in the fields 
or in the mines. The economic and social relations remain 
much the same in both cases : the quantity of surplus value 
extracted varies very little: the uncertainty of good treat- 
ment in the case of the slave, or of continuous employ- 
ment in the case of the wage-earner, is as great as ever: 
the provision for old age, all circumstances being taken into 
consideration, is not materially altered for the better, in 
spite of the miserable Old Age Pension dole, which has 
been acorded to workers over 70 years of age — practically 
in relief of Poor Eates. 

Moreover, at the present time, the extension of machinery 
in every department is tending, not only to displace men 
by women in many branches of industry and to increase 
uncertainty of employment, thus swelling the numbers of 
the permanently unemployed; but is also tending to re- 
duce the workers more and more to one dead level of mere 
attendants on the new machines introduced. Hence it 
arises, that of late years the trade unionists, who so long 
considered themselves and were regarded by others as " the 
aristocracy of labour," have been compelled to take a wider 
view of the class war, and to recognise that even they, 
whatever minor advantages they may secure by combina- 



SUKPLUS VALUE 101 

tion, are by no means adequately protected against the 
levelling advance of machinery, or assured against long 
periods of short time or worklessness, due to commercial 
and financial crises over which they have no control. They 
are, in fact, no better than food for surplus value like the 
rest of their class. They, like the rest, are a mere mass 
of human labour-power, embodied in flesh-and-blood, at 
the mercy of the class which controls the great forces of 
modern society. 

So, again, with regard to the rise of wages. It cannot 
be disputed that, in the great majority of industries, the 
rates of wages paid to men and women when in employ- 
ment have considerably increased. This is certainly true 
in the United Kingdom, and applies also in great degree 
to the continent of Europe. It is true, also, that this rep- 
resents to the wage-earners while in work a somewhat 
higher standard of life than they obtained prior to the war. 
But here again, taking the largest increment possible, it is 
questionable whether even this has compensated the work- 
ers for the periods of worklessness, or short hours worked, 
in many trades, or for the long weeks out on strike, to get 
or maintain the advances spoken of. 

In any case, the advantages secured by the producers in 
the shape of a higher standard of life are altogether out 
of proportion to the increase in the powers to produce 
wealth now at the disposal of mankind. These powers 
have increased in modern times to an extent far beyond 
that of which there is any record. It would certainly ap- 
pear, therefore, that those who argue that wages should be 
lowered in order to meet foreign competition; that the 
workers ought to emigrate, cease to marry, or in any way 
to propagate their species because population grows too 
fast for subsistence; and that the only way in which trad- 



102 THE ECONOMICS OF SOCIALISM 

ing and commercial prosperity can be maintained is by 
overwork at home and spoliation abroad — that the wise- 
acres who argue after this fashion, I say, might reasonably 
have their attention called to such facts as that (1) four 
men working on the land in the west of America can pro- 
duce enough food in a year to sustain 1,000 people for 
the like period, and that (2) one woman working at a 
loom in a factory can weave in a twelve-month enough 
cloth to clothe at least 100 people. In the face of such 
facts as these, to speak of over-population as the cause of 
poverty, or to demand reduced wages as a remedy for bad 
trade, is a sort of reasoning too monstrously absurd even 
for the most greedy appropriators of unpaid labour to use 
honestly. 

Surplus value, with the acquisition of profit, being the 
sole end and aim of the capitalist system; and payment 
of wages by way of purchase of free labour-power being 
the only means by which this end can be attained: it fol- 
lows that so long as the capitalist system endures so long 
must the appropriation of unpaid labour by the capitalist 
class continue; so long must there be a margin of unem- 
ployed at hand, to restrain the demands of those who are 
at work, and ready to be absorbed in periods of prosperity ; 
so long must wages on the average in every trade be no 
more than the subsistence rate customary in that trade 
regulated by competition; and so long, in short, must the 
workers be, in all but name, the slaves of the owners of 
the capital and the land. 

From this we can learn the comparatively small worth 
of mere palliatives. Sanitary factories, liability of em- 
ployers for injury to workmen, restriction of the age at 
which children may work, limitation of dangerous or un- 
healthy trades, even an eight-hour law, or seven-hour cus- 



SUEPLUS VALUE 103 

torn, each and all of these leave the basis of the system 
wholly untouched, and the difficulties to which it neces- 
sarily leads practically unmodified. The wage-earners 
may be a trifle healthier, a little less liable to mutilation, 
not quite so much overworked, and allowed a certain 
amount more leisure in which to reflect upon the causes 
of their subjection. But that is the total amount of ad- 
vantage they will gain. They will be just as uncertain of 
continuous employment, just as much liable to overwork 
by increased rapidity of machinery — ten hours' work 
being compressed into eight, or seven ---and just as little 
capable of making adequate provision for old age. 

Meanwhile the tendency of machinery is to bring all 
labourers to one level. In place of encouraging skill and 
individuality, the great machine industry has the effect of 
developing mere automatic, mechanical toil. Machines use 
men instead of men using machines. So the surplus-value- 
creating system grinds on, until the same economic causes 
which brought about its development, having worked 
through their full cycle, will bring about also the change 
to the next social stage. But at the end of the evolution 
of the capitalist period, as we now are, the examination 
of surplus-value and the manner in which it is obtained 
and appropriated not only affords the key to what is going 
on around us, but also, properly understood, gives a clue 
to the synthesis which is the complement of the analysis. 

We are thus enabled, in some degree at least, to forecast 
the coming period, when production of commodities will be 
carried on no longer under the control of a class, with a 
view to the creation of surplus-value and the absorption 
of unpaid labour in the shape of profit, but the production 
of useful and beautiful articles will be co-operatively organ- 
ised by the whole community for the benefit of all its mem- 



104 THE ECONOMICS OF SOCIALISM 

bers, between whom there will be no class distinctions, or 
economic antagonisms, whatever. 

To sum up: 

All exchange is conducted on an equality on the aver- 
age of transactions, and unequal exchange does not create 
wealth. What one loses the other gains. 

The capitalist who begins to produce commodities starts, 
under existing conditions, with money. He buys all his 
raw materials, incidental materials, machinery, &c., on 
the market with this money. Having commenced his op- 
erations with £100, he finds that he sells his finished com- 
modities for £110, or £10 more than he had advanced, and 
this was the object which he had in view from the first. 

Whence does this increase come? 

(a) It does not come from a reward for his risk, as, 
though one capitalist may risk being beaten in competition 
with his fellow-capitalist, the capitalist class as a whole 
run no risk. Besides, the reward for risk must come 
from somewhere, even supposing such reward there were. 

(b) Not from the raw materials, incidental materials, 
&c, which he buys at market price. The value of these 
reappears, including the value of the proportional wear- 
and-tear of machinery, in the finished commodity without 
change. They constitute constant capital, unaffected as 
to value by the industrial process, and are embodied in the 
finished commodity, unchanged in this respect, however 
much the form may have been modified. 

(c) Not, as said before, by unequal exchange, for this 
constitutes no value. 

The increase, therefore, comes from the capitalist's last 
purchase, the last commodity which he buys at the market 
rate. 



SURPLUS VALUE 105 

Now this commodity is usually called labour. But it is 
not labour which the capitalist buys as a commodity; 
for labour has, and can have, no value in itself. It only 
has value when it is embodied in articles of social utility, 
relatively to other similar articles in which, of course, 
labour is likewise embodied. 

What the capitalist purchases, therefore, to complete his 
selection of commodities necessary to commence produc- 
tion, is not labour, but the power to labour, or labour- 
power, that labour-embodying, value-creating capacity 
which human beings possess. 

But human beings must, by historic causes, be found in 
such a social condition that they have no other property, 
no other commodity, at command, to sell, except this force 
of their bodies, this labour-power which the capitalist 
wants to purchase. 

On the one side, free labourers, without property, anx- 
ious to sell their sole commodity, labour-power, for the day, 
the week, the month, the year. 

On the other side, owners of the means and instruments 
of production ready to buy this strange commodity which 
they find so conveniently on the market for purchase. 

Such are the two necessary conditions of capitalist pro- 
duction: without them capital as a series of social relations 
cannot he. 

The labourers are anxious to sell or exchange their 
labour-power, for unless they do they must starve. And it 
will not keep, this commodity which they are eager to 
dispose of. Consequently, they advance it on credit to the 
capitalist : not getting the exchange-value of it until a week, 
a fortnight, or a month of work has been done. 

Labour-power thus bargained away is exchanged on the 



106 THE ECONOMICS OF SOCIALISM 

same basis as any other commodity, namely, its cost of 
production in necessary, abstract, simple, social human 
labour. 

This means that the possessor of the labour-power ex- 
changes it with the capitalist for such means of subsist- 
ence as will keep him, according to the standard of life 
of his trade, and enable him to hand on the same lot to his 
offspring. 

This quantity of social human labour embodied in his 
standard of life is also determined, like the value of other 
commodities, by competition and higgling of the market. 
When, therefore, women and children are brought in to 
sell their labour-power, the whole household only earns 
what the head of the family would otherwise earn, and the 
apparent gain is illusory. 

Labour-power thus bought at its value in the quantity 
of necessary, abstract, simple, social, human labour em- 
bodied in its means of production (namely the subsistence 
of its owner), measured in money, is at the disposal of the 
capitalist for a fixed period, say a day. 

But the money value of this labour-power, the wages 
paid to its possessor for its use during the day, only repre- 
sents a quarter, a third, a half of a social labour day, 
whatever its length may be. 

Hence the capitalist receives back from the worker, in 
social labour- value embodied in commodities, the total value 
of his wages before the first three or four hours of the day 
are over. But he has the right, of which he avails him- 
self, to use the labour-power under the same conditions 
for the whole day. 

Consequently for every hour that the labourer works for 
himself to replace his wages, he works one, two, three, or 



SURPLUS VALUE 107 

even four hours for the capitalist without any payment 
whatsoever. 

The value thus appropriated by the employer for noth- 
ing constitutes surplus value, which is divided up among 
the various sections of the non-producing class. 

What conceals from the workers at large the method of 
their expropriation is the form of money in which they are 
paid their wages. If, like chattel slaves, they received in 
return for their labour only so much of the corn, or the 
wine, or the meat, which they themselves raised and pre- 
pared for their master, they would be under no delusion 
as to the meaning of the transaction, however little power 
they might have to emancipate themselves from their thral- 
dom. If, on the other hand, they were villeins compelled 
to give two or three days' work in the week to their lord 
without any payment whatever; in this case also they would 
not imagine, however stupid they might be, that they were 
co-partners with their noble superior in the product of their 
enforced husbandry or handicraft. 

But the fact that they are perfectly free, so free that 
they can go wherever they please and still possess nothing, 
so free that they must sell their labour-power at cost of 
subsistence to be exploited by the possessing class — this 
keeps their eyes blinded, in the great majority of cases, to 
the pleasing social juggle which enables the owners of the 
means and instruments of production to deprive them of 
two-thirds or three-fourths of the value of their day's, 
week's, or year's work without paying anything for it. 



CHAPTEE IV 

CIRCULATION OF COMMODITIES 

Labourers must sell their labour-power, day by day, or 
week by week, in order to exist as labourers. If they fail 
to be able to sell this, their sole commodity, regularly on 
the market, they cease to live, or have to accept charity or 
State aid in some form. They are living under a relent- 
less economic law, from which, as individuals, they cannot 
possibly emancipate themselves. Possessing no wealth, nor 
any social power to control and subsist upon the products 
of the labour of others, they are as much compelled to 
place their labour-power at the disposal of members of the 
capitalist and landowning class as their economic ancestors, 
the slaves of old. Their economic freedom is limited to 
the right (not always easy to exercise) to sell their labour- 
power to another purchaser than the one who had bought 
it yesterday. Anyway, sell they must. 

But just as the labourers are compelled by their social 
and economic status to sell their labour-power for money, 
in order merely to exist as labourers, so must the capi- 
talists sell their commodities on the market for money, in 
order merely to exist as capitalists. They have no choice 
in the matter. In order to carry on their productive proc- 
ess it is not suficient to produce commodities: they must 
convert them into money continuously, in order to recom- 
mence the process and carry it steadily on. Such is the 
irony of the situation that, though both labourers and 
capitalists are performing social duties, and .cannot but 

108 



CIRCULATION OF COMMODITIES 109 

perform them, they both also carry on their share of such 
social work solely for personal and individual objects. The 
labourers toil only incidentally, as it were, from their 
point of view, to make articles of social use. They sell 
their labour-power in order to obtain wages in money, and 
how their labour-power is applied, so long as they get those 
wages, in return for a given period of work, concerns them 
not at all. 

The capitalists, on their side, use this labour power, not 
with any idea of providing society with what its members 
want, as a social function; but they perform this social 
duty also, as it were, by the way, and on the road to 
securing their profit. If capitalists could obtain profit 
without using all the complicated machinery, human and 
other, necessary for the output of useful articles, nothing 
would please them better. Their sole and only aim, as a 
class, is to obtain as much profit as possible, and to extend 
their business at the expense of other capitalists, their 
rivals, in order to prevent these rivals from absorbing them. 
No social or human consideration has any weight in the 
matter. 

The surplus value is squeezed out of the labourers in the 
factory, in the mine or on the farm, and the capitalist's 
share of it, in the form of net profit, is contained in the 
overplus of commodities created by the unpaid labour of his 
workers. There it is at his disposal. But it is not realised 
as yet. Moreover, his total product, in its commodity 
shape of cotton cloth, woollen cloth, boots, hats, iron goods, 
wheat, lead, &c, cannot be used to buy directly the raw 
materials and all that he needs to begin afresh. The land- 
lord will not accept his ground-rent, nor the banker his 
interest on loans, in kind. Sell for money the capitalist 
must. 



110 THE ECONOMICS OF SOCIALISM 

In this way, therefore, the circulation of commodities in 
our modern society begins. Articles are produced to-day 
in such conditions that they are of no use to those who 
produce them. Consequently, they must be moved round 
the circle of exchange until they reach the hands of the 
persons who need them, and, what is more important, can 
pay for them — pay for them in money, or the equivalent 
of money, that is to say. Mere need constitutes no title to 
commodities: mere demand is of no account. The need 
must be a need backed by hard cash : the demand must be 
what the old economists called an effective demand. 

Money it is which renders this circulation of commodi- 
ties, this whirl of exchange, possible. Barter, the direct 
exchange of commodities, is at an end. This form of the 
exchange of useful things, from the hands of those to 
whom they are not useful into the possession of others to 
whom they are useful, is different in every respect from 
the process which we see going on all round us to-day. In 
barter, or direct exchange for mutual use, the product of 
useful labour in one form takes the place of the product 
of useful labour in another form. The farmer, for in- 
stance, exchanges his sacks of wool against a pedlar's 
silks, who again trades away the wool for finished cloth. 
Consumption follows, and the mere circulation is at an 
end. 

Attempts have been made to restore the direct exchange 
or barter of useful goods between one individual and an- 
other. But so completely has the idea of valuation apart 
from money disappeared, that, insensibly, those who wish 
to obtain other articles in place of their own, estimate the 
value of their possessions which they propose to transfer, 
not with reference to the need which they have of the other 
articles they desire to possess in place of these, but with 



CIRCULATION OF COMMODITIES 111 

regard to the price that either would realise if brought into 
the open market. An exchange of commodities may be 
directly effected between individuals by barter; but, still, 
in spite of all they can do, the vision of the price current 
is ever before them. 

When, however, a commodity is exchanged for money, 
something much more has taken place than a mere exchange 
or transfer of commodities. When, for instance, our capi- 
talist, impelled thereto by the very necessity of his being, 
sells his cotton cloth, or his boots, for money, he does a 
great deal more than merely part with useful articles for 
gold. For gold, of course, is by no means always money, 
any more than money is always gold. 

Thus gold itself, when it is only a commodity, when, that 
is to say, it is a bar of the precious metal to be used in 
industry or the arts — gold in this case is no more money 
than a bar of platinum, or a bar of tin, or a pig of lead, 
likewise destined for use in the arts, is money. The capi- 
talist who sold his goods even for bar gold, in such cir- 
cumstances, would not have done that which he wished to 
do. And the individual purchaser, like the individual 
capitalist, who wished to buy, and thus begin a circula- 
tion of commodities, extending far beyond his own immedi- 
ate purchase and sale, would at once discover that gold, 
merely as a commodity, would not do his business. He 
would be forced, when he got it, to resort to a bullion 
dealer and convert his valuable commodity into money 
before he could buy a bible for £2 out of the proceeds of 
the sale of some linen for that £2, thus enabling the owner 
of the bible to buy brandy with the same £2, and so on and 
so on. 

Gold in its money shape is a very different thing, then, 
from gold as a mere commodity. It performs in its own 



112 THE ECONOMICS OF SOCIALISM 

person in this shape several functions, and figures as real 
and ideal at one and the same time. Gold as money is 
the very corporeal expression of value, or social value. It 
is in itself the very incarnation and embodiment of such 
value. In such a case, in Marx's own words, " gold as gold 
is exchange value itself." It possesses the power of con- 
verting itself, or being converted by its possessor, into all 
the useful social articles which can be obtained. And it 
possesses this power although its own utility has been 
taken from it altogether, for the purpose of evaluation, 
exchange and price. 

Here, as in the original investigation of value, we are 
driven to abstract reasoning. When it is said that gold in 
the form of money is exchange value itself, what is meant ? 
This: that gold, when all its useful properties are no 
longer taken into consideration — and this is manifestly 
the case when it is proposed to use it as a measure of value, 
or as money — has ceased to be a commodity in any sense. 
As a measure of value for all the commodities offered on 
the market it is, in fact, a mirror which reflects at once the 
value of each in turn as an ordinary mirror reflects the 
" values " of the human face. 

When this is done we have ceased to trouble ourselves 
about the cost of production of gold itself, or about its 
greater or less utility. It is recognised as the measure of 
all values, because it is the universally admitted repre- 
sentative of the embodiment of social human labour in the 
abstract. Thus used, money converts the values of the 
infinite number of commodities into imaginary quantities 
of gold. And this comes about not because money renders 
it possible to measure the value of commodities. "The 
contrary is the case. Only because all commodities, in so 



CIRCULATION OF COMMODITIES 113 

far as they are values, are embodied human labour, are 
they capable of being measured in relation to one another ; 
and, secondly, are they capable of being measured in one 
and the same special commodity which becomes the com- 
mon measure of them all." This special commodity being 
converted into common measure, namely, money — Bax's 
"matterless form" — reflecting the values of commodities 
all round. 

So far of the gold which the capitalist must have as a 
measure of value. As a standard of price, money meas- 
ures the quantities of gold which have previously been 
imaginary. The ordinary price current gives the result of 
the latest competition on the market in yarns, cloths, iron, 
coffee, wheat, and so on; not in imaginary quantities of 
gold, but in actual sovereigns. Yet, of course, this is an 
ideal valuation. Each possessor of useful goods sees in 
place of his special commodity its market price. Its utility 
has ceased to concern him. What he is concerned with 
is the price, and the price alone, that he is likely to get. 
And it is this standard of price that money provides him 
with. Moreover, the changes which may take place in the 
value of gold itself do not affect its function as this stand- 
ard of price. 

In the ordinary form of the circulation of commodities 
the change is from money to commodities and then from 
commodities back to money. When the commodity moves 
out, its equivalent, money, steps into its place; and several 
moves of this kind may be made before the commodity 
reaches its final destination and is consumed: the money 
being always in the hands of the buyer and the commodity 
in the possession of the seller. From this point of view 
gold and money in general form a convenience of ex- 



114 THE ECONOMICS OF SOCIALISM 

change, as already said. It is a means of facilitating the 
circulation of commodities from those who want to sell to 
those who need to buy and use. 

But to the capitalist money is the means whereby he can 
realise at one stroke all the values locked up in the commod- 
ities which he has produced, including the surplus-value, 
which was the real reason why he produced them at all; 
and, having thus obtained his money back with an incre- 
ment, he can begin the whole process over again. But, 
further, money represents to the capitalist, as well as to 
the rest of the world, the means of payment; the means of 
paying his rent, of meeting bills when due, of discharging 
gas and water rates and the like. 

In this respect money acts no longer merely as a circu- 
lating medium. It is no longer only an agent in facilitat- 
ing the exchange and circulation of useful products. Now 
it becomes the individual incarnation of social labour, the 
embodiment in itself of the value of an aliquot part of that 
labour. It is the independent form of existence of ex- 
change value, the universal commodity which everybody 
desires, standing by itself. Here we have a contradiction 
and an antagonism in the uses of money, which produce 
a very practical effect indeed at periods of industrial and 
financial tension. Money, at these times, may be in such 
great demand as a means of payment that its purpose as a 
means of promoting the circulation of commodities will be 
temporarily quite lost sight of. 

Nor is it only in days of stress and strain that this mis- 
take is made. Such is the influence of money on the hu- 
man mind, that, just as in the domain of industry, human 
beings are physically dominated by the very machinery 
which they themselves make, and which they should con- 
trol to the common advantage, in order to lessen the amount 



CIRCULATION OF COMMODITIES 115 

of labour needed to create wealth, instead of allowing it 
to be used to pile up riches against them; so this other 
social creation, money, in place of being regarded by the 
many as a mere instrument, to be used in existing con- 
ditions to facilitate the transfer of their products, is 
looked upon as wealth itself. Because money will pur- 
chase all that they want and give to its possessors power 
over the community, therefore it becomes to the mass of 
mankind something much more than a mere symbol of 
social value, a standard of price, or even a means of pay- 
ment. Money is the one thing needful, the one object 
we ought all to strive for ! 

When economists tell the people that money is not 
wealth and that its creation, beyond certain well-defined 
limits, is not only not advantageous but positively a waste of 
the time and labour of the community, the majority of 
men and women still refuse to believe it. "Wealth seems 
to them to come from above, in the shape of money; as it 
does to the domestic servant, or the cabman, who receives 
his wages or his fare from his master or his employer. 
There cannot, therefore, be too much of it. Even men 
who ought to know better not unfrequently encourage for 
their own purposes this illusion. Not so very long ago, 
for instance, Lord Morley, who is commonly supposed to 
have cleared his mind of supernaturalism in every shape, 
publicly made his obeisance to this money fetish. He 
hoped that the day would never come when we English- 
men should cease to be very careful about money. Obvi- 
ously money in this sense meant to our philosophic politi- 
cian something much more than incorporated social labour 
counters, and those whom he addressed so understood him. 

Nevertheless, in order to comprehend the working of 
our capitalist system, and the function which money or its 



116 THE ECONOMICS OF SOCIALISM 

representatives, bank-notes, drafts, cheques, bills, and the 
like, play in facilitating circulation and exchange: in 
order, too, to detect the real significance of that antag- 
onism between commodities and money, which plays so 
crucial a part in the immediate bringing about of finan- 
cial crises; it is absolutely necessary to clear the mind of 
all this confusion. 

Mere money is, as said, a useful commodity deprived of 
its utility and applied to a special purpose. Taken at its 
full value it forms but a very small and insignificant frac- 
tion of the total accumulated labour-value of any civilised 
community. So far, also, from a superabundance of 
money necessarily bringing with it good trade, it is an 
absolute certainty that any supply of money, over and 
above what is actually needed for the service of any given 
society, will simply lie idle in the banks. What is the 
quantity of currency required to do the circulating work of 
any nation was proved theoretically more than two hundred 
years ago, and is determined in practice by many who never 
looked into the theory of the subject in their lives. In the 
same way that many a skipper will safely navigate his 
craft, by observation and calculation, who never gave a 
thought to the theory on which the logarithmic tables he 
uses are based. The amount of money necessary depends, 
then, upon the value and rapidity of circulation of the 
commodities to be moved from where they are not useful 
into the consumer's hands. 

A common example of this is what is called the "mov- 
ing of the crops." That operation in this and other coun- 
tries, and especially in the United States, calls for a very 
large sum in hard cash. When the crops move out from 
the farmers money must flow in, and at each successive 
stage of the movement, as the wheat, hay, cotton, wool, &c, 



CIRCULATION OF COMMODITIES 117 

passes on to its destination, money must come in to fill up 
the gap. Moreover, it is some time before the money thus 
sent out from the banks in gross begins to flow back in 
detail. This occurs when the farmers and their associates 
begin to purchase supplies from the shopkeepers or store- 
keepers; who, in turn, remit through the local banks to 
the central institutions as they give their orders for fresh, 
supplies, for the replenishment of their stocks of goods de- 
pleted by the farmers' purchases. 

It is almost needless to point out in this case that if 
more money were sent out than was required, for the pur- 
pose of facilitating the circulation of the food-stuffs to be 
moved, nobody would gain by it. The prices which the 
farmers obtain for their product in bulk are not regu- 
lated by the temporary scarcity or temporary superabund- 
ance of currency at a particular spot ; though possibly in a 
case here or there an individual may lose or gain by these 
local circumstances. The farmers' prices, on the contrary, 
are governed by the condition of the world-market in re- 
gard to their special products. The main competition and 
higgling of the market which determine the quantity of 
simple, abstract human labour embodied in what they want 
to sell take place not locally but centrally. The local 
trade is conducted within very narrow limits of possible 
fluctuation. . 

This is a simple case, and it occurs as a rule but once a 
year on a large scale. With manufacturers it takes place 
much more frequently, the rapidity of the turnover being 
increased or slackened according to the circumstances of 
the particular trade, and the amount of money needed in 
all to move the goods is regulated in each case, by the entire 
period taken to complete and realise the product. To 
take, in passing, the case of a wholesale baker, whose sales 



118 THE ECONOMICS OF SOCIALISM 

are from day to day, and his bills are collected week by 
week ; it is obvious that the amount of currency needed to 
circulate his commodity at any given time is very small, 
as compared with his total yearly output, by the side of 
what is needed to perform the same office for a farmer who 
is carrying on business on relatively the same scale. Here, 
however, as in the farmer's case, a great supply of currency 
would not facilitate the circulation of the bread in any 
way; unless, indeed, a philanthropist were to provide a 
number of poor people in the neighbourhood with the means 
of buying loaves which otherwise they could not have 
bought. 

This, no doubt, is what many who crave for an expan- 
sion of the currency, have in their minds, as in some way 
or another likely to occur, if the State sets the mints going 
at twice their ordinary rate, or if valueless money, in the 
shape of notes with no coin behind them, were tumbled 
out upon the country. But a very slight consideration 
will show the most careless reader that a mere increase of 
currency by itself will not bring about the circulation of 
more loaves of bread ; while the creation of a mass of State 
assignats receivable, as some propose, in payment of taxes, 
would not benefit a country in any way whatever. Those 
who keep their eyes steadily fixed on the production of 
articles of utility and their circulation as embodiments of 
human labour value are not likely to be led astray by the 
will-o'-the-wisps of the currency-mongers of any school. 

To return to the capitalist and his proceedings. He be- 
gins with money, buys his raw materials of production, in- 
cluding labour-power, takes these into the sphere of pro- 
duction itself, and emerges therefrom, as already explained, 
with the sum of all the values expended during the process 
embodied in commodities, plus the increment which he has 



CIKCULATION OF COMMODITIES 119 

squeezed out of purchased labour-power. These commodi- 
ties he then sells for money, which replaces his original 
money advance with something more. That ends this par- 
ticular cycle for him. The form of it is money, then raw 
materials and incidental materials, then, lastly, more 
money. Or, money, commodities, money again. And the 
capitalist regards labour-power simply as one of his com- 
modities and the wages paid in money as a part of his in- 
evitable pecuniary expenditure. The money itself has, of 
course, no say in the matter. What sort of goods it buys 
does not affect the universal equivalent in any way. 

Certain it is that money is not in any sense the cause 
of wagedom. The workers exist separated from their 
means of production. There they are, on the one side, 
ready to sell. There stands the capitalist, on the other 
side, ready to buy, and to bring these divorced elements of 
production together — on terms. He does so by means of 
money. But it is not the money itself, nevertheless, which 
brings about the social conditions that result in the an- 
tagonistic classes of capitalists and wage-earners. Not at 
all. The labour-power of the workers can be bought as a 
commodity, and its product put in circulation, because these 
social classses already exist in predetermined conditions. 
It is the same as it was with slavery. Money bought 
slaves, and slaves were sold for money. But this could 
only be done where slaves existed. Money could not make 
slavery possible by itself; so neither can it make wage- 
slavery possible by itself. 

From the labourer's side the whole process takes quite a 
different aspect, however. He is the seller of the commod- 
ity, labour-power, and is anxious to circulate it in return 
for money. He does so, and his labour-power goes into the 
possession and under the power of the purchaser at its mar- 



120 THE ECONOMICS OF SOCIALISM 

ket price. The money which he receives at the end of the 
week in the shape of wages, for the advance of his labour- 
power for that time to the capitalist, represents to him the 
means of buying other commodities necessary for his mere 
subsistence; thus beginning with his money a circulation 
of commodities at the other end. 

Whether his money-wage goes into the publican's till or 
the baker's purse, may make a difference to him, but in 
either case the money has gone from him in exchange for 
commodities. The labourer, unlike the capitalist, begins, 
then, with commodities, his labour-power, to wit, exchanges 
for money, and passes on to the purchase of commodities; 
though in his case the shape in which he receives his wages 
disguises from him the truth that he has received only a 
fraction of the value of the labour embodied by his labour- 
power, and that the remainder is either in his employer's 
possession or is circulating on the market: in both cases 
far removed from him. 

Clearly, also, when money as capital goes out on to the 
market, and is converted into the raw material of produc- 
tion, or productive capital, this productive capital can no 
longer circulate. It must go into the productive process, 
that is, into consumption, whence it emerges in a changed 
form, and must then go out into circulation again. Sim- 
ilarly, that portion of the raw material of the indispensa- 
ble element of production called labour-power can only 
realise its use in the productive process, and create values 
for future circulation, quite irrespective of the will, or 
even of the knowledge, of its original seller. 

It may be convenient to give here the various categories 
of capital which Marx substituted for the bald "fixed" 
and "circulating" capital of the orthodox economists. 
These separations and distinctions, when firmly grasped, 



CIRCULATION OF COMMODITIES 121 

render it easy to comprehend the somewhat complicated 
phenomena of modern industrial society: 

I. The Money-Capital. This may be taken as the start- 
ing-point of the whole process. With this, as already often 
said, the capitalist goes out on to the market to buy his 
raw materials of production, in order to convert them into 
commodities, and eventually to increase his cash capital. 
It is only when used in this way that money is active capi- 
tal. Money of itself need not be capital, but, when it is 
in the hands of a capitalist who is using it for the purpose 
of producing commodities with a profit to himself, — then 
it is capital in its most active shape. 

II. The Commodity Capital, or Eaw Material Capital, 
which signifies the purchased commodities, including 
Labour-Power, that, having been bought with the money 
capital, are taken into the sphere of production. Here their 
form is completely changed, as raw cotton is converted into 
yard and afterwards into cloth, leather into boots, iron- 
ore into iron, clay into porcelain, &c. Some of the mate- 
rials, in fact, as coal, oil, gas, completely disappear. But, 
none the less, the spirit of these component parts of the 
commodity capital, their value, appears in the completed 
commodities. The commodity capital, including labour- 
power, goes into the productive or labour process as a num- 
ber of commodities, and comes out again as a quantity of 
commodities. 

" One of the most striking peculiarities of the circula- 
tion process of industrial capital, and therefore also of 
capitalist production as a whole, is the circumstance that 
on the one hand the elements for the formation of pro- 
ductive capital come out of the market for commodities, 
and are continually renewed therefrom; that, in fact, they 
must be bought as commodities: on the other hand, the 



122 THE ECONOMICS OF SOCIALISM 

products of the labour-process issue from it as commodities, 
and as commodities they must be sold." 

Compare, for instance, a modern farmer working his 
farm on the best method with the highest skill and a 
farmer of the old time. The modern farmer, though he 
still scarcely regards himself as a capitalist in the manu- 
facturing sense, is so completely overmastered by the 
necessities of the capitalist system that he sells off his farm 
everything he can sell. Frequently he even purchases his 
seed for the next crop. If he does not sell, unless he is 
merely holding for speculative purposes, he feels he has 
made a mess of his business. 

The old-world farmer, on the contrary, so far from sell- 
ing everything he could sell, sold as little as he possibly 
could. His object was to provide for himself and those 
around him to the full extent that was possible, doing this 
often at the expense of far more labour than was neces- 
sary, had he sold some portion of his product and bought 
with the proceeds. But he only sold his actual superfluity. 
The contrast is marked. In the one case buy everything 
and sell everything. In the other case buy as little as 
possible and sell only the surplus. 

III. Fixed Capital. This does not mean capital fixed 
to a particular spot of ground, as a factory, or a furnace, 
or a mining-plant, or a machine. Fixed capital in Marx's 
sense means such proportions of the capital, whether build- 
ings, machines, tools, steam-engines, or similar appliances, 
as only transfer a portion of their value in the course of 
production to the commodity produced; thus giving over 
their value to the commodities by degrees, the remainder 
of the value, over and. above that which has been parted 
with in the productive process, remaining fixed in them. 



CIRCULATION OF COMMODITIES 123 

The whole of their value is, of course, used up and trans- 
ferred to the commodities sooner or later. But this bit by 
bit transference may extend over many years, and conse- 
quently, as remarked in the last chapter, the greater part 
of the original value of the structure, or of the machinery, 
may long since have gone forth into the great whirl of 
commodities, while the building itself or the machinery 
still continues in a more or less complete condition to fulfil 
its part in the process of capitalist production of commod- 
ities. " Capital is not ' fixed ' because it is fixed in the 
instruments of labour, but because one portion of its value, 
embodied in instruments of labour, remain fixed therein, 
whilst another portion is in circulation as a fraction of the 
entire value of the completed product." 

This is recognised in practice. In all properly-kept ac- 
counts, there is a yearly deduction of from ten or more 
per cent, made from profits to allow for depreciation — 
this depreciation representing, on the average, the pro- 
portion of value which has been parted with by the fixed 
capital to the commodities in the course of production and 
which, in some way or other, has to be replaced. This 
has nothing to do with the so-called " moral " depreciation 
spoken of by Marx, due to the introduction of some new 
method of producing the same commodities with more 
costly appliances and less labour. This there is no means 
of calculating beforehand, and the danger to the individual 
capitalist can only be met by a deduction from his surplus 
value, or his share of it in the shape of profit, thus en- 
abling him in time to adopt the improved methods, if it 
seems desirable to do so. With that, however, we have 
nothing to do here. 

It should be noted, however, that fixed capital, like all 



124 THE ECONOMICS OF SOCIALISM 

other capital, is a direct product of human labour, and 
that its repairs and renewals are, of course, in like manner 
due to human labour. 

The whole factory, building, works, machinery, new ap- 
pliances and inventions, are due also to the social sur- 
roundings and social status of those who construct them. 
There is no individual genius at work here of such colossal 
magnitude that its possessor can divorce himself from his 
begettings, surroundings, and education, and thus invent, 
apply, construct and use, so to say, in vacuo. There is no 
human being who is entitled to say of any fixed capital, of 
any machinery or works, however cunningly devised, " I 
did this," " I am the unit that gives to the human cyphers 
their value." All such things, great or small, arise from 
the society in which they are made, and which, as a society, 
creates them. 

It is necessary to state this again here, because certain 
economists constantly reiterate that all improvements are 
due to individual persons, and that therefore — the ethic 
is as peculiar as the logic is faulty — certain other persons, 
namely, the capitalist class, who did not invent them, really 
ought to possess them, by reason of the value which these 
inventions create! But improvements in methods of pro- 
duction which increase fixed capital, and entail the use of 
machinery on a larger scale, do not, as remarked before, 
increase the value of commodities but reduce it; and the 
capitalist obtains an increased profit by the larger output, 
not by selling dearer, but by producing cheaper ; that is to 
say, with a less expenditure of human labour. 

Again, a product of industry may be a mere commodity 
to its producer and fixed capital to its purchaser. Thus 
the maker of cotton-spinning, or cotton- weaving, machin- 
ery, the constructor of a steam-hammer, a crane, or a 



CIRCULATION OF COMMODITIES 125 

hydraulic press, necessarily regards his product as a com- 
modity. He in fact sells it, and is forced to sell it, as a 
commodity, and, if not made to a definite order, domestic 
or foreign, it goes out upon the market as a commodity, to 
circulate with other commodities, until such time as it 
finds its ultimate purchaser, in England, America, Aus- 
tralia, Germany, China or Japan. Then it does become 
fixed capital to that last purchaser, who applies it to pro- 
ductive purposes; and the spindles, the looms, the steam- 
hammer, and so on, proceed to give off of their value to the 
commodities which they, in their form of fixed capital, 
having ceased themselves to be commodities, help to create. 

Further, mere fixity has nothing to do with the defini- 
tion. A locomotive engine, like the machines named above, 
is a commodity to its producer for sale, but is fixed capital, 
involving a lock-up of capital, only gradually set free, to 
those who use its power as intended. Oxen as ploughing 
oxen are fixed capital to their proprietor. Sold off the 
farm they figure as commodities. Fatted and killed for 
the farmer's food they become mere articles of consump- 
tion. And so, in many similar cases, it can be easily 
seen that the old imperfect definition of fixed capital must 
be abandoned in favour of the true, scientific, definition of 
fixed capital given above. 

IV. Circulating Capital is that portion of the constitu- 
ents of production which consists of the raw materials, the 
incidental materials (what the Germans call help-mate- 
rials), labour, &c, whose value is wholly incorporated in 
the completed commodity during the process of produc- 
tion. It consists of capital in the commodity shape. It is 
circulating capital, in the form of finished commodities or 
stocks of commodities; as distinguished alike from the 
money capital into which it is converted at the next stage, 



126 THE ECONOMICS OF SOCIALISM 

and which it was — less, of course, the amount of the sur- 
plus value — in the previous stage ; and as distinguished 
from the fixed capital, the greater portion of whose value 
has probably not yet been given forth to the commodities 
which have been, or are about to be, thrown into circu- 
lation. 

This form of capital, circulating capital, is well under- 
stood in all financial accounts, and when a manufacturing 
business is valued for any purpose a well-defined distinc- 
tion is drawn between the realisable stocks of commodities, 
whether they be clothing, or boots, or hats, or barrels of 
beer, which can be put in circulation at once, and the 
machinery, buildings, waggons, horses and carts, which 
form a portion of the same industrial establishment. Such 
commodities can be exchanged, and, of course, must be 
exchanged, for money; but as they lie in stock they con- 
stitute liquid capital, which represents all the immediate 
advances made in their creation. 

The old French economists, who are known as the Physio- 
crats, made this distinction between immediate advances 
and permanent advances, which they designated avarices 
annuelles and avarices primitives. Applied, as these two 
categories were by them, almost solely to agriculture, the 
primitive, or permanent, advances represented the capital 
embarked in draining, making roads, constructing build- 
ings, purchasing ploughs, horses, sheep, and so on, The 
annual advances, realised in the shape of cereals, wine, wool, 
&c, consisted in seed, manure, food for cattle and the like, 
which each yearly crop necessitated. To them the differ- 
ence between the two forms of capital consisted in the 
longer or shorter period of their return to the person 
advancing, and the creation of surplus value was not a 



CIRCULATION OF COMMODITIES 127 

necessity of all capitalist production, but a peculiarity of 
agricultural production alone. It is not, however, the 
longer or shorter period of return that makes the difference, 
but the method of giving over the value to the product. 

Adam Smith extended this distinction of the Physiocrats 
to the whole field of capitalist production in the guise of 
fixed and circulating capital ; but both he and Eicardo, by 
confusing " fixed and circulating " with " constant and 
variable " capital, landed themselves and their followers 
in a series of mistakes. 

To quote Marx again : " The confusion created by Adam 
Smith in this matter of fixed and circulating capital has 
led to the following results: 

"1. The difference between fixed and circulating capital 
is confounded with the difference between productive cap- 
ital and capital in the form of commodities. Thus, for 
example, the same machine is circulating capital if it is 
found on the market as a commodity, and fixed capital, if 
it is taken into the process of production. From which it 
is absolutely impossible to determine why one particular 
sort of capital should be more fixed, or more circulating, 
than the other. 

" 2. All circulating capital is identified with the capital 
expended, or to be laid out, on wages of labour. As with 
John Stuart Mill and others. 

" 3. The difference between variable and constant capi- 
tal which was already used by Barton, Eicardo and others 
as convertible with that between circulating and fixed 
capital is at length reduced entirely to those cases where 
all means of production, raw material, &c. ? as well as 
tools, are fixed capital, and only the capital laid out in 
wages is circulating capital. 



128 THE ECONOMICS OF SOCIALISM 

"4. Amongst the most recent English, and especially 
Scotch economists, who regard everything from the un- 
speakably narrow standpoint of a banker, the difference 
between fixed and circulating capital is twisted into money 
on call and money not on call." 

V. Constant Capital is that portion of the capital, such 
as the value of the wear-and-tear of the buildings, plant, 
machinery, horses, carts, &c, the value of the raw mate- 
rials, of the incidental materials, and, in fact, the value 
of all the commodities bought and taken into the process 
of production, except the value of the labour-power — of 
the value-creating commodity. The value of all these com- 
modities, whose value is embodied in the finished product, 
without change of such value during the process of pro- 
duction, no matter how greatly their mere form may be 
changed, constitutes constant capital. 

This category of capital was so fully dealt with in the 
last chapter that it is not necessary to do more here than 
point out the difference which exists between constant 
capital and fixed capital on the one side, and circulating 
capital on the other. Constant capital, so far as it relates 
to buildings, machinery, and tools, represents the value of 
the actual transfer of capital to the commodity during the 
process of production. It consists of that portion of the 
value of the fixed capital, in respect of the wear-and-tear 
of that fixed capital, which is incorporated in the quantity 
of commodities produced. This value, whatever it may be, 
small or large, undergoes no increase or decrease whatever 
during the process of production. So much of the virtue of 
the original plant has gone out of it in doing this piece 
of work, and has been transferred, without modification, to 
the finished product. Its value remains constant, there- 
fore ; it is a portion of the constant capital in the finished 



CIRCULATION OF COMMODITIES 129 

commodity, having been a portion of the fixed capital be- 
fore the process of production began. 

In like manner, the value of the raw materials, and 
incidental materials, is incorporated, without change, as 
part of the constant capital embodied in the finished com- 
modity. Their value, that is to say, also reappears with- 
out change in this completed product after the process of 
production is at an end; they themselves, as commodities, 
having formed a portion of the Commodity-Capital, pur- 
chased by the capitalist with money at the beginning of 
the whole operation. From that Commodity-Capital, it 
will be remembered, Fixed Capital was of necessity ex- 
cluded, and Labour-Power, the value-creating commodity, 
was included, labour-power being bought, as a commodity, 
for use in the process of production, like other commodities. 
On the other hand, constant capital, though it is partially 
included in circulating capital, does not pomprise its 
entire constituents; for circulating capital includes the 
embodiment of labour-power in labour-value, which formed 
a portion, not of the constant capital, but of the variable 
capital. 

VI. Variable Capital is the capital expended by the 
capitalist in the purchase of labour-power as a commodity. 
This labour-power so purchased is then made use of in the 
process of production, for the purpose not merely of mak- 
ing commodities, but with the object of embodying in those 
finished products its value as a commodity (which value to 
the owner of the labour-power is represented by the money 
wages paid by the capitalist) and more. "The charac- 
teristic of variable capital is that a determined, given frac- 
tion of capital, a definite amount of value, is exchanged 
against a self -increasing, value-creating power — labour- 
power, to wit — which not only reproduces the value paid 



130 THE ECONOMICS OF SOCIALISM 

for it by the capitalist, but likewise produces a surplus 
value, a value previously non-existent and paid for by no 
equivalent/' 

This variable capital, with its accompanying surplus 
value, contributed by the labour-power of the worker, with- 
out remuneration, during the process of production, re- 
appears in the finished commodities. The value of the 
wages paid in money to the worker appears in these fin- 
ished commodities, before the commodities are converted 
into money again. So, likewise, does the surplus value 
appear in the form of finished commodities. Both por- 
tions of the product being indistinguishable in the entire 
mass, and all, of course, belonging to the capitalist, as 
now his circulating capital. When the commodities are 
turned into money the value of the variable capital and 
the surplus value are realised in money, simultaneously 
with the realisation of the constant capital in money. 

VII. Circulation Capital. This form of capital, ac- 
cording to Marx's nomenclature, is the same that is ordi- 
narily called circulating capital. That is to say, it is 
capital which whether in the form of commodities or in 
the form of money, enters into exchange and passes from 
hand to hand; in contradistinction to its form of pro- 
ductive capital as which it figures in the process of pro- 
duction. " There are not two special sorts of capital into 
which the capitalist divides his capital, but there are dif- 
ferent forms which the same capital-value continually as- 
sumes and drops one after the other in its course through 
life/' 

The capital which is expended in fixed capital is eventu- 
ally circulated in the product, in the same way that the 
capital expended in commodities is circulated in the prod- 
uct; and both are similarly converted into capital, in the 



CIRCULATION" OF COMMODITIES 131 

shape of money, by the circulation of the capital in the 
form of commodities. No profit whatever is engendered 
merely by the conversion, through exchange, of the com- 
modities owned by the capitalist into money. All that 
takes place by such conversion is that the capitalist realises 
his original advances, together with his surplus value 
(which includes his individual profit) in the form of 
money ; in place of holding them, as in effect he cannot do, 
in the form of commodities. Both the money and the com- 
modities .are circulation capital, in contradistinction, and 
even opposition, to productive capital; but they are not in 
any sense circulating, or liquid, capital in contradistinction 
to fixed capital. 

These, then, are the seven categories of industrial capi- 
tal which whosoever understandeth thoroughly the same 
shall be economically saved! 

Mercantile capital, which is, historically speaking, many 
centuries older than industrial capital, stands outside these 
categories. It is the money capital used by the merchant, 
as the buyer of commodities and trader upon differences of 
value. This capital so used creates no wealth and pro- 
duces no surplus value, though it frequently piles up riches 
for its possessor, at the expense, of course, of the pro- 
ducers and buyers of the commodities. 

If now our capitalist, being obliged to sell the commodi- 
ties which he has produced for money, finds that all goes 
well with him; that he is able to sell his product readily; 
and that there is no hitch or check in the circulation of his 
commodities — how does he stand ? He has got back again 
in money the full value which he originally expended in 
money, and has likewise realised his surplus value in 
money. Unless he intends to retire from business alto- 
gether, he is bound to use the same amount of money that 



132 THE ECONOMICS OF SOCIALISM 

lie did before in purchasing a new set of commodities to 
produce with. That is outside his individual volition. 
But what he does with the surplus value in money, or so 
much of it as belongs to him, is a matter for him to decide. 
He can either expend it on personal enjoyment, he can 
invest it in stocks, he can accumulate it, or he can put it 
back into his business. 

In practice, if he adopts the first course, he will probably 
soon be beaten by a more cautious, or more enterprising, 
competitor. The rule of modern competitive production 
is " Get bigger or burst." It is a hard saying, but it is 
of universal application. If he does not absorb and digest 
his competitors they will, unless he possesses a monopoly, 
absorb and digest him. Moreover, even apart from this 
necessity, he will require a reserve fund, to provide against 
any delay in disposing of his product. So that the second 
course, of investment, or deposit in a bank, is the one which 
he will almost certainly adopt; mere accumulation, miser- 
fashion, being, to the active capitalist, a manifest folly. 

But the business cannot be extended in small parts. 
The capitalist, no matter how anxious he may be to grow, 
can only add to his factory, workshop, rolling-mills, or 
shipyard on a certain scale, proportionate to the original 
scope of his enterprise. Until this point is reached, his 
profits, which, after making due provision for a reserve 
fund, he proposes to devote to the enlargement of his opera- 
tions, must remain for him as capital in a state of sus- 
pended activity. The bankers, to whom he entrusts it for 
safe keeping, may lend it to other capitalists for use in 
their business, or the depositor himself may borrow from 
them to make up his deficiency. But only when that 
minimum sum needed for extension is provided can the 
extension take place. 



CIRCULATION" OF COMMODITIES 133 

Now, this law of capitalist existence, that each producer 
must increase his scale of production or fall by the way- 
side, means, in practice, that only the biggest are the fit to 
survive. This is what is actually taking place. Each 
capitalist in a free, competitive market is ever striving to 
drive his competitor's goods out of the channels of circula- 
tion, and to replace them by his own. The weapon em- 
ployed in this commercial war is cheapness. And the proc- 
ess goes on and on until competition reaches its logical 
term in combination and monopoly: in an agreement, that 
is to say, between a number of large firms not to undersell 
one another, when they have once obtained control of the 
market, but to crush out all rivals by any means ; or in an 
absolute monopoly of production and distribution, of which 
at present there are already some examples. 

But though the point of absolute monopoly has been at- 
tained in comparatively few instances even in the United 
States — where, owing to various causes, the economic de- 
velopment in this direction is in advance of anything to be 
observed elsewhere — the growth of big concerns at the 
expense of smaller is one of the most significant features 
of the time in all countries. This is to be noted not 
merely in production, but in every department of circula- 
tion and distribution. Combinations and trusts, national 
and international stores, and national and international 
banks, all go to show the tendency of the time. 

In particular, the waste of the unregulated competitive 
system, more especially in the matter of circulation and 
distribution, is beginning to correct itself. At the pres- 
ent time the waste of labour in a huge number of small 
shops, all selling the same goods, with an infinity of petty 
advertisements in every direction puffing those goods, mani- 
fests to everyone the defects of our distributive system; 



134 . THE ECONOMICS OF SOCIALISM 

while even the men and women employed waste half their 
labour in working at a mechanical disadvantage, alike in 
production and distribution. As the capitalist system 
goes on, however, we see great central establishments, 
working with a minimum of friction and with branches 
extending in all directions, gradually supplanting the petty 
producers and retailers of past times, the waste in every 
direction being thus lessened more and more. Thus, as 
capitalism, meaning thereby competitive production of com- 
modities for profit, relentlessly breaks down and overpowers 
all other forms of production throughout the world; so 
now, alike in production and in distribution, its tendency is 
to break down itself in the competitive form. 

But whether production and distribution are conducted 
under capitalism on a large scale or on a small scale, the 
system itself is worked on the same lines. It is of the 
utmost importance to the capitalist that his raw materials 
shall always be purchasable in sufficient quantity, and that 
his products shall have a ready and continuous outlet — 
that the circulation of commodities, in a word, should pro- 
ceed continuously and without check. By no goodwill of 
the capitalist himself, assuredly, does any interruption oc- 
cur in the steady circulation of his capital. All who par- 
ticipate in his surplus-value are equally anxious that there 
should be no hitch to deprive them of their share of it. 

But the demand for the goods, whether for those to be 
used in production, or for the products themselves, is often 
fitful, even in what is a steady market on the whole. 
Consequently, an accumulation of commodities in ware- 
houses becomes necessary, not as a condition of continuous 
sale, but as a consequence of the temporary unsalability 
of the commodities. Nevertheless, these warehouses as- 
sure, through their presence, the steady continuance of the 



CIRCULATION OF COMMODITIES 135 

process of circulation and reproduction of commodities, in 
normal conditions, as a reserve of money is a necessity for 
the circulation of money; and an expenditure of capital is 
called for in either case, constituting a deduction from the 
total social wealth, indispensable as their existence is. 

When a difficulty of a serious character arises in the dis- 
posal of products for money, and fresh commodities come 
forward before the last batch has been sold, then the ac- 
cumulation of goods increases rapidly, just as an accumula- 
tion of gold is brought about owing to a similar check to 
the circulation of money. Then we have a glut, either at 
the factories themselves, or in the merchants' storehouses. 
This glut arises directly from the antagonism between gold 
and commodities ; from the impossibility of converting com- 
modities into money fast enough to take oif the overplus. 
And the block thus occasioned in the channels of circula- 
tion, as will be seen more clearly later, not only involves 
a temporary suspension of the exchange of commodities all 
round the circle, but throws the machinery of production 
itself out of gear. 

Once more let it be repeated that continuous production 
and sale of commodities for money is an indispensable neces- 
sity of the capitalist system. But necessary warehousing, 
so far from adding to the value of commodities, is a deduc- 
tion from the wealth of the community, partly by actual 
loss in storage, partly by deterioration of quality, and partly 
by the labour of one sort or another which the mainte- 
nance of the warehouse entails. It is certain that nobody 
pays any more for goods merely because they have been 
stored. When the market is ready to take them, the stored 
goods and the unstored goods, the articles produced yester- 
day, or the articles produced months ago, fetch precisely 
the same price, provided they are equally good. 



136 THE ECONOMICS OF SOCIALISM 

In the case of commodities which gain in quality by 
keeping, and are warehoused or stored for that purpose, the 
storage becomes part of the entire process of production, 
not of the circulation ; and the risks of such storage, as 
in the case of wine or brandy, &c, constitute part of the 
cost of putting them upon the market. Though, in these 
instances, as in others, a stock of each special commodity 
is needed, apart from the storage for improvement, in 
order to meet the breaks in continuous circulation. 

Transport of commodities plays a great part in the 
sphere of the circulation of capital, and one which, since 
the early part of the last century, has increased enormously 
with each succeeding decade. The mere fact that raw 
materials are now transported from the place where they 
are grown, or mined, to the centres where they are taken 
into the next stage of production and manufactured, and 
then are frequently sent back again, in the form of the 
completed commodity, to the very spot whence they origi- 
nally came — such a series of transfers as this gives the 
transport of goods an exceptional place in modern industry, 
as also it has rendered the development in the direction of 
railways and steamships a necessity. 

Thus, raw cotton from the Southern States of America, 
from India, from Egypt, finds its way to the mills of Lan- 
cashire, Northern France, and Germany, and then the 
cotton cloth is again sold, from the former mills at any 
rate, in some of the countries from which the raw material 
has come. So, in like manner, with the Bilbao iron-ore 
from Spain, with copper from the United States, Chili, the 
Cape, and the East, with silk from Italy, France and China. 

These raw materials are imported into manufacturing 
countries, and then, frequently, the finished commodity 
is retransported back to the countries which originally pro- 



CIRCULATION" OF COMMODITIES 137 

vided the raw materials. Even in the United States it- 
self, which is more self-dependent in the matter of raw 
materials than any other country, these raw materials, when 
produced, are carried by rail thousands of miles to the 
manufacturing centres, where they are transformed into 
finished commodities, and are then transported in that 
shape back again. At the same time, the necessities of 
trade break down all national boundaries, and the farming 
lands which supply Great Britain, not only with all sorts 
of raw materials, but with wheat, meat, butter, eggs, fowls, 
fruit, are situated, in some cases, hundreds, and in other 
cases, thousands, of miles from our shores. 

Now it is clear that mere transport of itself does not 
necessarily add value to a commodity. If it did, and a 
certain school of Anglo-Indian economists reason as if they 
soberly held the view that transport of itself does create 
value, then, clearly, the farther we send all sorts of goods 
the more they will fetch. This, however, is manifestly 
absurd. 

Necessary transport is different. The utility of things 
can only be made effective by consumption, and their con- 
sumption may necessitate their removal, and therefore de- 
mand the complementary process of production involved 
in transport. Such transport can be watched in the actual 
process of production itself. Coal at the pit's mouth repre- 
sented a value in money of, let us say, twelve to fourteen 
shillings a ton. A factory close by can obtain it at that 
price plus the cost of transporting it, probably a few pence : 
to a factory thirty miles further off, with no nearer supply 
of coal than the same pit, the cost of similar coal is in- 
creased by the amount expended in transport, probably two 
shillings or more a ton, whether this be done by railway, 
tramway, barge, ship or waggon. The transport of com- 



138 THE ECONOMICS OF SOCIALISM 

pleted products follows the same rule, and the productive 
capital embarked in the transport industry gives value to 
the product, partly through the wear-and-tear of the means 
of transport, and partly through the direct labour expended. 
This latter portion of the contributed value is divided, as 
the directly productive labour is divided, into the value of 
the wages paid to the labourers and the surplus value which 
is obtained from their incorporarted but unpaid labour. 

All this means that whereas the expenditure of capital on 
advertising, sorting, grading, warehousing, and packing 
commodities, in order to facilitate their exchange into 
money, adds nothing to their value, but constitutes merely 
a deduction from the total surplus value, transport stands 
in a different category. Transport increases the value of 
a commodity, in so far as it takes the cheapest method to 
bring it from where there is no market to where its social 
utility can be made effective. And as the quantity of la- 
bour needed to effect such transport is lessened the addi- 
tional value due to transport is decreased. But, manifestly, 
if goods are sent to a market merely for realisation at what 
they will fetch, the transport can add no value to them 
which will save the transmitter from loss. 

It may not be out of place to point out here the influ- 
ence which improved transport on the one hand, and ex- 
cessive railway rates due to antiquated appliances or sheer 
monopolist greed on the other produces on the circulation 
of commodities; how also a great railway company, or a 
combination of railway companies, can isolate an entire 
region and produce as great an effect in the direction of 
limiting that free competition, or free trade, which is taken 
as the basis of capitalist production in an advanced stage, 
as any hostile tariff that was ever imposed. 

Thanks to the great improvement in steam-engines and 



CIRCULATION OF COMMODITIES 139 

mechanical appliances, by land and sea, it is now possible 
to transport goods in quantity from the remotest parts of 
the world at a cost at which it would have been impossible 
to carry similar goods ten or twenty miles under the old 
conditions. The contrast between the two systems and the 
hindrance to circulation which the old system involves is 
felt in practice the moment any new district is opened up 
to mining, agriculture or commerce in any part of the 
world. 

West Australia and parts of South Africa afford striking 
evidence of this with respect to mining. Brazil is a still 
more striking example with regard to agriculture. Where 
lines of railways are driven into that country from ports 
on the coast coffee plantations and other plantations speed- 
ily spring up. They cease where the railway ceases, and 
sometimes before, if the rates for transport are too high. 
In China, the lack of railways has confined the main com- 
merce of that huge empire to the lines of water communi- 
cation. But in the United States, where railway transport 
has reached a point far in advance of that attained in any 
other country, the railways are now even more important 
than the rivers and canals, as agents in facilitating the 
circulation of commodities. More remarkable still, per- 
haps, was the reduction of freights by the great ocean- 
going steamers and sailing-vessels prior to the war. 

The effect of cheapened freights is very marked in in- 
tensifying the competition of over-sea products with home- 
grown products in all European Countries, but more par- 
ticularly in Great Britain. Taking the cost of transport 
of commodities as the basis of comparison, it was the fact 
that, owing to the high rates charged by the English rail- 
ways, Australia, Canada, the wheat centres of Canada, a 
great portion of the North- West district of India, and even 



140 THE ECONOMICS OF SOCIALISM 

the vast wheat-producing areas of the Mississippi, Missouri 
and Saskatchewan were, reckoned by freight, within the 
thirty-mile radius of London. That is to say, grain, fruit, 
pork, meat, &c, grown in these regions, within easy dis- 
tance of railway, were as near to the London market, so far 
as the cost of transport is concerned, as the inhabitants of 
towns in the Home counties. 1 The English railways, 
therefore, so far from facilitating the circulation of home- 
produced or home grown commodities, directly hamper such 
circulation and act as a heavy protective agency in favour 
of foreign produce. 

But not content with thus impeding circulation by their 
rates of freight, English railway companies have delib- 
erately shut out this or that district from convenient trans- 
port in order to favour another. This occurred not many 
years ago in Great Britain with reference to the South 
Yorkshire coal-field, and in the United States in regard 
to a portion of the bituminous coal-field of Pennsylvania. 
As to the cost of transport of commodities also special 
rates have frequently been made by companies for special 
customers, thus ensuring the injury or even the ruin of 
their rivals. This whole subject of transport is of crucial 
importance in the circulation of commodities, as is seen, 
more especially, in relation to the circulation of agricul- 
tural products. But up to the present time the social 
character of the function performed by railways, canals, 
&c, has been no more recognised than the social character 
of production has been admitted. 

In the circulation of capital and commodities we have to 

i In my evidence before the Royal Labour Commission, given 
thirty years ago, I showed that a cask of lager beer could be sent 
from St. Louis to London, 4,200 miles, for less than a sack of 
potatoes could be brought from Devizes. 



CIKCULATION OF COMMODITIES 141 

consider not only the time occupied in production but also 
in realisation: the two together, the period of production 
and the period of circulation, representing the total time of 
the turnover. Now the differences between the time of 
production in different branches of industry are in prac- 
tice endless, and the period of the turnover is thus directly 
affected. And the result of this in such varying circum- 
stances is that between cotton cloth which is perhaps thrown 
on the market every week, or a locomotive which will take 
three months to construct, or a ship which may take a 
year, or agricultural products which may take a like period, 
or raising cattle, which may occupy several years, the vary- 
ing labour-period exercises a great influence upon the 
whole operation. 



CHAPTER V 

PROFIT 

In previous chapters the division of the value of the 
social product between the contending classses which make 
up modern society has been neglected. At most we have 
considered the labourers and the capitalists as two antag- 
onistic sections of that society: the former producing by 
their labour all the wealth that is produced, in return for 
wages which represent no more than a moderate subsist- 
ence, and sometimes not even that : the latter appropriating 
all the value incorporated in commodities by the labour 
of these wage-earners. The surplus-value created by the 
unpaid labour of the workers, over and above the return 
of the original wages paid and constant capital advanced, 
being taken in the first instance by the capitalists directly 
engaged in the process of production, and then being 
divided up with others who may be regarded as active or 
sleeping partners in the business. 

The most important of these participators in the total 
surplus value created by social labour and appropriated by 
employers, or by groups of employers in the form of share- 
holders, are the landlords and interest receivers. Land- 
lords take their share by reason of their individual owner- 
ship of the soil, in the shape of what we call rent. Bankers, 
traders, merchants, and others receive their portion, by 
reason of the social conventions which give them control 
of money and credit, chiefly in the shape of what we call 
interest. The remainder falls to the employer as profit. 
It is this last which we shall investigate first. 

142 



PKOFIT 143 

Profit, the creation and increase of profit, is the motive 
power of the whole capitalist system of production. Al- 
though capitalists produce articles of social use, in the 
society where they act as the agents of production, this 
social utility is for them quite a secondary matter. Whole- 
someness, purity, a high standard of nourishment, fine 
quality of clothing, &c, carry no weight whatever with 
them, except in so far as these features in commodities 
facilitate rapidity of sale, and, therefore, of realisation of 
profit, for their benefit. If inferior goods of any kind 
command a more satisfactory profit, as the result of pro- 
duction and exchange, than goods of a superior grade, then 
the former will be produced in preference to the latter. 
Thus production for exchange, regardless of the actual 
worth to the eventual purchaser and consumer, dominates 
the entire field of capitalist industry. The lowest possible 
quality of deleterious but saleable gin is, for them, on the 
same plane as the very best description of agreeable and 
strengthening wine — so long as the poisonous alcohol is 
easily and profitably disposed of. 

Moreover, the capitalists themselves, as well as the wage- 
earners they employ, have no control whatever over the 
articles which they have produced for sale. The commodi- 
ties go out upon the market for exchange, and realisation 
for profit, and when that is done, all command over them 
passes to others. These articles likewise are of no use to 
those who, as wage-earners, turn them out for the capital- 
ists : the capitalists and the workers themselves, with their 
means of creating wealth, are merely the animate and inani- 
mate means whereby raw materials are converted into ex- 
changeable wares, or goods, which comprise in themselves 
the power to be exchanged, to be sold for money, to realise 
the amount of value in all the capital paid out for wear- 



144 THE ECONOMICS OF SOCIALISM 

and-tear of machinery and tools, raw materials, incidental 
materials, depreciation of buildings, waggons, &c, and 
wages, plus the additional labour-value embodied in the ex- 
changeable articles to be sold. For which last no wages 
have been paid, nor any other consideration has been 
given. 

This surplus quantity of commodities constitutes the 
surplus value, or gross profit, which is the sole reason why 
the entire industrial operation was entered upon and car- 
ried through. Such gross profit brought to being in the 
process of industry is the property in the first instance of 
the individual capitalist himself, subject to deductions, in 
the overwhelming majority of cases. The net profit of the 
capitalist, that is to say, can only be arrived at after rent 
has been paid and interest on money borrowed has been sub- 
tracted, when his commodities, including the surplus value 
or gross profit, have been realised in money. 

But the rate of profit, whether gross or net, is very dif- 
ferent, as we have already seen, from the rate of surplus 
value, or, in other words, is very different from the ratio 
of unpaid to paid labour. Furthermore, the rate of sur- 
plus value, which is the measure of the exploitation of 
labour that the capitalist is carrying on, may remain pre- 
cisely the same, or even increase, while the rate of profit is 
very much reduced. 

Now the average rate of profit is continually falling in 
all civilised countries. Superficial observers, therefore, 
commonly contend that the wage-earners in those coun- 
tries must, of necessity, as a class, be obtaining, apart from 
any obvious rise in wages relatively to the cost of sub- 
sistence, a constantly increasing share of the national prod- 
uct of industry, as compared with the share that is realised 
and appropriated by the capitalist class. This may even 



PEOFIT 145 

appear, at first sight, a reasonable contention, and accumu- 
lation of capital therefore becomes a mystery. 

The rate of profit, however, is invariably reckoned upon 
the whole of the capital embarked in any enterprise. Not 
upon that portion of the capital which is used for pur- 
chasing labour-power and paying wages, but upon the con- 
stant capital and the variable capital taken together. But 
the increasing tendency, throughout the field of capitalist 
production, is that the amount of constant capital — capi- 
tal embarked in machinery, raw material, &c, — should 
grow relatively to the amount of variable capital expended 
— the capital used to pay wages — embarked in the pur- 
chase of labour-power. This is due to the larger amount of 
machinery used, demanding heavier supplies of raw mate- 
rial, &c, as processes of industry are improved by new 
inventions, and the whole business of capitalism is con- 
ducted upon a larger scale. 

Thus, in a furniture factory where £50,000 is the total 
capital embarked in the business we may have £25,000 
employed as constant capital for machinery, buildings, raw 
materials, incidental materials, and so on, with £25,000 
used to purchase labour-power. Let us assume that the 
rate of the exploitation of labour, that is of surplus value 
or unpaid labour to paid labour, is one hundred per cent. 
There will then be £25,000 of unpaid labour, surplus value, 
or gross profit, embodied in the completed articles of furni- 
ture which belong to the capitalist, and the rate of gross 
profit on the entire capital embarked will be £25,000 upon 
£50,000, or 50 per cent. 

Now let improved and more costly machinery be set up, 
calling for larger or better buildings with a corresponding 
increase in the amount of raw materials, in this case 
wood, used in the process of production. Then we may 



146 THE ECONOMICS OF SOCIALISM 

assume that this constant capital will represent no longer 
£25,000 but £40,000 out of the total £50,000 and the varia- 
ble capital available for paying wages will fall to £10,000 
instead of £25,000: the rate of exploitation of labour re- 
maining as before 100 per cent. Therefore the surplus 
value of unpaid labour embodied in the articles of fur- 
niture as a whole falls to £10,000. This shows only 20 
per cent, upon the same total capital, namely, £50,000; 
though the smaller number of wage-earners still employed 
provide the same ratio of unpaid to paid labour embodied 
in the articles of furniture that they did before. They 
gain nothing whatever by the fall in the rate of profit cal- 
culated on the total capital. 

Now this process of the increase of the proportion of 
constant capital to variable capital is, as said, steadily 
extending in every department of productive industry as 
the whole system of capitalism itself extends. Constant 
capital, which engenders no surplus value, is growing pro- 
portionally to the variable capital which alone engenders 
surplus value. JSTor is this tendency materially changed, 
though it may be temporarily affected, by the cheapening of 
the elements of constant capital, machinery, buildings, raw 
materials, incidental materials, waggons, and so forth. 
Consequently, the tendency of the rate of profit is to fall in 
all capitalist countries, though the rate of surplus value, 
namely, of unpaid to paid labour, may remain unchanged. 

This whole tendency of the rate of profit to fall in all 
highly-developed capitalist countries is set forth by Marx 
as follows: 

" Given the rate of wages and the working-day, a varia- 
ble capital of £100, let us say, sets in motion a fixed number 
of labourers: it constitutes the criterion of this number. 



PEOFIT 147 

For example, let £100 be the wages of 100 labourers, say 
for one week. If these 100 labourers perform just as much 
necessary labour as surplus labour, they daily work as much 
time for themselves, that is for the reproduction of their 
wages, as for the capitalist, namely, for the production of 
surplus value; their total production in value is equal to 
£200, and the surplus value they have produced amounts to 
£100. The rate of surplus value, consequently, the ratio 
of unpaid to paid labour embodied in commodities, would 
be one hundred per cent. (100 %). This rate of surplus 
value, cent, per cent., would, nevertheless, express very dif- 
ferent rates of profit according to the varying size of the 
constant capital employed relatively to the total capital 
embarked. Thus, the rate of surplus value being one 
hundred per cent. : 

" If the constant capital is represented by a money value 
of £50, and the variable capital by a money value of £100, 
then the rate of profit on the above assumption represents 
the ratio which £100, the total amount of surplus value 
produced, bears to the entire amount of constant capital 
and variable capital together employed. This is £150. 
The rate of profit in this case, therefore, is in the propor- 
tion of 100 to 150, or 66% per cent. 

" But, now, if the constant capital is increased to £100 
under the same conditions, the rate of profit is the ratio 
which £100, the total amount of surplus-value produced, 
bears to £200, the entire capital employed. The rate of 
profit here, then, the same rate of surplus-value being main- 
tained, is not cent, per cent., or 66% per cent., but the rela- 
tion which 100 bears to 200, or 50 per cent. 

" So, again, if the constant capital rises to £200, the 
variable capital still remaining at £100, and the rate of 



148 THE ECONOMICS OF SOCIALISM 

surplus- value being still cent, per cent., or also £100, the 
rate of profit falls still further, and is as £100 to £300, or 
33% per cent. 

"Once more, when the constant capital reaches the 
amount of £300, the rate of profit is as £100 to £400, or 
only 25 per cent. 

" As a last illustration, take the constant capital at £400. 
This, added to the variable capital of £100 used to pay the 
wages of the 100 labourers, gives a total capital of £500. 
The surplus-value is still £100. k Here, therefore, the rate 
of profit falls still more, and is represented by the relation 
of £100 to £500, or 20 per cent. 

" Thus, the same rate of surplus- value, accompanied by 
an unchanged scale of exploitation of labour, would express 
itself in a falling rate of profit; because the amount of 
tKe value of the constant capital, and together with this 
the amount of value of the total capital, grows with its 
own material bulk, though not in the same proportion." 

Hence, says Marx, further, "the progressive tendency 
of the general rate of profit to fall is only an appropriate 
expression of the capitalist system of production for the 
advancing development of the social, productive power of 
labour." He adds that the whole school of political econ- 
omists, professors and pupils alike, outside the Socialists, 
"have failed to expound or explain this law" — of the 
falling rate of profit — "because they are incapable of 
formulating the distinction between constant and variable 
capital in an intelligible and practical shape; and they 
cannot separate rate of surplus value from rate of profit, 
or discriminate between gross profit as a whole and its 
various independent portions, such as industrial profit, 
ground-rent and interest." 

This is as true to-day of the general theorists of political 



PEOFIT 149 

economy in Great Britain, outside the Marxist school, as 
it was when Marx wrote. Not a single one of our academic 
economists has contributed anything of real value to any 
portion of Marx's analysis, though many of them have 
exhausted their energies in futile endeavours to frame an 
economic basis of capitalism which shall scientifically con- 
ceal the wholesale exploitation of labour. There is, how- 
ever, no possible explanation of the falling rate of profit, 
concurrent with an equal or even an improved remuneration 
of the workers, and a larger return to capital as a whole, 
than the solution propounded by Marx. 

Hitherto, the operation of the capitalist system has been 
mainly considered from the point of view of production 
and realisation by an individual employer, or company. 
Now, in considering the general distribution of surplus 
value, or gross profit, and the establishment of an average 
rate of profit for all capital embarked in productive busi- 
ness, the matter must be regarded from the point of view 
of capital as a social and not merely as an individual 
economic force. Thus, returning to two producers of fur- 
niture, one manufacturing his cabinets, chairs, tables, &c, 
by the old hand-work process and another with the best 
improved machinery, both using the same quality of wood 
and turning out — which is quite possible — identically 
similar articles in the same quantity for sale upon the 
market, the following is obviously the position : 

(a) The second producer will have relatively a much 
larger proportion of his active industrial capital employed 
as constant capital — machinery, raw material, incidental 
materials, &c. — and a much smaller proportion of his 
entire capital embarked in the form of variable capital — 
payment of wages for the purchase of labour-power — than 
the first producer of furniture. 



150 THE ECONOMICS OF SOCIALISM 

(b) Whatever the total amount of capital, constant and 
variable together, may be (which is assumed to be the same 
for both producers) upon which the rate of profit has to be 
reckoned, obviously the first producer is paying very much 
more in wages, that is to say, his variable capital is much 
larger in proportion to his constant capital, than that of the 
second producer. Therefore the amount of surplus value 
embodied in his commodities in the shape of unpaid labour 
is much greater in the case of the producer who manufac- 
tures furniture in the old-fashioned way than in the case 
of the capitalist using improved machinery. That is be- 
yond dispute. 

(c) When, however, manufactured furniture of the same 
quality is placed upon the market, it is manifest that the 
two sets of goods will fetch the same price. What has 
happened? The social power of reproduction, with the 
less expenditure of labour, comes behind the two sets of 
commodities and equates them in exchange. 

(d) Hence the furniture-manufacturer working with 
the larger amount of constant capital and the less amount 
of variable capital takes to himself in realisation a large 
proportion of the unpaid labour embodied in commodities, 
in this case furniture, which, in the first instance, nom- 
inally belongs to the capitalist who turns out furniture 
merely by the labour of hand-workers, without machinery. 

(e) Obviously, the "organiser of labour" who sticks 
to the old process must ere long be driven out of the 
market by the more advanced employer of labour, although 
his quantity of surplus value to begin with is greater than 
that of his competitor. 

(f ) This simple process, clear enough in theory, is being 
applied all through the market in various departments in 
actual practice. Capital using on the average larger 



PKOFIT 151 

amounts of constant capital will inevitably as a rule com- 
mand the market as against the same total amount of 
capital producing with smaller amounts of constant cap- 
ital. The larger the constant capital the greater the rela- 
tive gain to the capitalist, though the rate of profit, on the 
total capital employed, is steadily falling all the time. 
Simple, abstract social human labour, engaged in produc- 
ing the various commodities for profit, with the surplus 
value simultaneously created by the unpaid labour em- 
bodied therein, forms the basis of the entire system. 

(g) It is the competition of capitals engaged in the 
different branches of industry which establishes the average 
rate of profit throughout. This average rate of profit in 
nowise conflicts with the labour theory of values, but, on 
the contrary, confirms it. 

But in the general survey of capitalist production and 
average rate of profit we have not to deal with segregated 
instances of capital of higher composition, that is to 
say capital employing more constant capital, and capital of 
lower composition, using less constant capital, in direct 
competition with one another on the field of realisation. 
The competition covers the whole area of the production of 
commodities for profit under the capitalist system. Here 
the general social effect of this system comes into play. 

It is thus put by Marx : " Although capitalists in the 
various spheres of production recover the value of the cap- 
ital used up in the production of their commodities, by 
the sale of these commodities, they do not obtain the sur- 
plus value or the gross profit created in their own sphere by 
the production of these same commodities, but only as 
much surplus value and profit as falls to the share of every 
portion of the total social capital out of the total social sur- 
plus-value, or social gross profit, produced by the total cap- 



152 THE ECONOMICS OF SOCIALISM 

ital of society in all spheres of production. Every 100 of 
any invested capital, whatever may be its organic composi- 
tion, draws as much profit during one year, or any other pe- 
riod of time, as falls to the share of every 100 of the total 
social capital during the same period. The various capital- 
ists, so far as profits are concerned, are so many shareholders 
in a share company in which the portions of profit are uni- 
formly divided for every 100 shares of capital, so that profits 
differ in the case of the individual capitalists only according 
to the amount of capital invested by them in the social 
enterprise, according to their investment in social produc- 
tion as a whole. 

" That portion of the price of commodities which buys 
back the materials of capital used up in the production of 
commodities, in other words their cost price " — [the con- 
stant capital, raw materials, incidental materials, wear-and- 
tear of machinery, &c, and variable capital in the shape of 
wages actually paid out] — " depends upon the investment 
of capital required in each particular sphere of production. 
But the other element of the price of commodities, the per- 
centage of profit added to this cost price, does not depend 
upon the mass of profit produced by a certain capital during 
a definite time in its own sphere of production, but on the 
mass of profit allotted for any period to each individual 
capital in its function as part of the total social capital 
invested in social production. 

"A capitalist selling his commodities at the price of 
production recovers money in proportion to the value of the 
capital used up in their production and obtains profits in 
proportion to the part which his capital represents in the 
total social capital. His cost prices are definite. But the 
profit added to his cost-prices is independent of his partic- 



PEOFIT 153 

ular domain of production, for it is a simple average per 
100 of invested capital." 

Here the difference between the actual cost of production, 
and the price of production with average profit added, is 
set out. 

This had been previously expounded more elaborately as 
follows. C in the tables stands for constant capital and 
v for variable capital. 

"Let us compare five different spheres of production, 
and let the capital in each one have a different organic 
composition, as follows : 









Rate of Sur- 


iSurplus 


Value of 


Rate of 




Capitals 


plus Value 


Value 


Product 


Profit 


I. 


80c 


20v 


100% 


20 


120 


20% 


II. 


70c 


30v 


100% 


30 


130 


30% 


III. 


60c 


40v 


100% 


40 


140 


40% 


IV. 


85c 


15v 


100% 


15 


115 


15% 


V. 


95c 


5v 


100% 


5 


105 


5% 



"Here we have considerably different rates of profit in 
different departments of production with the same degree of 
exploitation, corresponding to the different organic compo- 
sition of these capitals. 

"The grand total of the capitals invested in these five 
spheres of production is 500; the grand total of the sur- 
plus-value produced by them is 110; the total value of all 
commodities produced by them is 610. If we consider, 
the amount of 500 as one single capital, and capitals I to V 
as its component parts (about analogous to the different 
departments of a cotton mill which has different propor- 
tions of constant and variable capital in its carding, pre- 
paratory spinning, spinning, and weaving rooms, on the 
basis of which the average proportion for the whole factory 
is calculated), then we should put down the average com- 



154 THE ECONOMICS OF SOCIALISM 

position of this capital of 500 as 390c + llOv, or, in per- 
centages, as 78c + 22v. In other words, if we regard each 
one of the capitals of 100 as one-fifth of the total capital, 
its average composition would be 78c + 22v; and every 
100 would make an average surplus-value of 22. The aver- 
age rate of profit would, therefore, be 22%, and, finally, 
the price of every fifth of the total product produced by 
the capital of 500 would be 122. The product of each 
100 of the advanced total capital would have to be sold, 
then, at 122. 

"But, in order not to arrive at entirely wrong conclu- 
sions, it is necessary to assume that not all cost-prices are 
equal to 100. 

" With a composition of 80c + 20v, and a rate of sur- 
plus-value of 100, the total value of the commodities pro- 
duced by the first capital of 100 would be 80c + 20v + 
20s, or 120, provided that the whole constant capital is 
transferred to the product of the year. Now, this may 
happen under certain circumstances in some spheres of 
production. But it will hardly be the case where the 
proportion of c to v is that of four to one. We must, 
therefore, remember in comparing the values produced by 
each 100 of the different capitals, that they will differ 
according to the different composition of c as to fixed and 
circulating parts, and that the fixed portions of different 
capitals will wear out more or less rapidly, thus trans- 
ferring unequal quantities of value to the product in equal 
periods of time. But this is immaterial so far as the rate 
of profit is concerned. Whether the 80c transfer the value 
of 80, or 50, or 5, to the annual product, whether the 
annual product is consequently 80c+20v+20s=120, or 
50c+20v+20s=90,"or 5c+20v+20s=45, in all of these 
cases the excess of the value of the product over its cost- 



PEOFIT 



155 



price is 20, and in every case these 20 are calculated on a 
capital of 100 in ascertaining the rate of profit. The rate 
of profit of capital I is, therefore, in every case 20%. In 
order to make this still plainer, we transfer in the following 
table different portions of the constant capital of the same 
five capitals to the value of their product. 















Value 








Rate of 








of Com- 








Surplus 


Surplus Rate of 


Used 


mod- 


Cost 




Capitals 


Value 


Value 


Profit 


UpC. 


ities 


Price 


I. 


80c+ 20v 


100% 


20 


20% 


50 


90 


70 


II. 


70c+ 30v 


100% 


30 


30% 


51 


111 


81 


III. 


60c+ 40v 


100% 


40 


40% 


51 


131 


91 


IV. 


85c+ 15v 


100% 


15 


15% 


40 


70 


55 


V. 


95c-f- 5v 


100% 


5 


5% 


10 


20 


15 




390c+110v 




110 


100% 






Total 




78c+ 22v 




22 


22% 




Average 



" Now, if we consider capitals I to V once more as one 
single total capital, it will be seen that also in this case 
the composition of the sums of these five capitals amounts 
to 500, being 390c llOv, so that the average composition 
is once more 78c 22v. The average surplus-value also 
remains 22%. If we allot this surplus-value uniformly 
to capitals I to V, we arrive at the following prices of the 
commodities : 











Cost Price 




Deviation 










of Coir 


l- Price 




of Price 






Surplus 




mod- 


of Com- 


Rate of 


from 




Capitals 


Value 


Value 


i ities 


modities 


Profit 


Value 


I. 


80c+20v 


20 


90 


70 


92 


22% 


+ 2 


II. 


70c+30v 


30 


111 


81 


103 


22% 


— 8 


III. 


60c+40v 


40 


131 


91 


113 


22% 


—18 


IV. 


85c+15v 


15 


70 


55 


77 


22% 


+ 7 


V. 


95c+ 5v 


5 


20 


15 


37 


22% 


+17 



"Summing up, we find' that the commodities are sold 
at 2+7+17=26 above, and 8+18t=26 below their value, 
so that the deviations of prices from values mutually 
balance one another by the uniform distribution of the 



156 THE ECONOMICS OP SOCIALISM 

surplus-value, or by the addition of the average profit of 
22 per 100 advanced capital to the respective cost-prices of 
the commodities of I to V. One portion of the commodi- 
ties is sold in the same proportion above in which the other 
is sold below their values. And it is only their sale at 
such prices which makes it possible that the rate of profit 
for all five capitals is uniformly 22%, without regard to 
the organic composition of these capitals. The prices 
which arise by drawing the average of the various rates of 
profit in the different spheres of production and adding 
this average to the cost-prices of the different spheres of 
production are the prices of production. They are condi- 
tioned on the existence of an average rate of profit, and 
this, again, rests on the premise that the rates of profit in 
every sphere of production, considered by itself, have pre- 
viously been reduced to so many average rates of profit. 

s 
These special rates of profit are equal to — in every 

C 
sphere of production, and they must be deduced out of 
the values of the commodities. Without such a deduction 
an average rate of profit (and consequently a price of pro- 
duction of commodities) remains a vague and senseless 
conception. The price of production of a commodity, then, 
is equal to its cost-price plus a percentage of profit appor- 
tioned according to the average rate of profit, or in other 
words, is equal to its cost-price plus the average profit. 

" Since the capitals invested in the various lines of pro- 
duction are of a different organic composition, and since 
the different percentages of the variable portions of these 
total capitals set in motion very different quantities of 
labour, it follows that these capitals appropriate very dif- 
ferent quantities of surplus-labour, or produce very dif- 



PROFIT 157 

ferent quantities of surplus-value. Consequently the rates 
of profit prevailing in the various lines of production are 
originally very different. These different rates of profit 
are equalised by means of competition into a general rate 
of profit, which is the average of all these special rates of 
profit. The profit allotted according to this average rate 
of profit to any capital, whatever may be its organic com- 
position, is called the average profit." 

And throughout, as the advance of social production 
becomes more and more marked, by the application in 
industry of improved mechanical and chemical improve- 
ments and the consequent growth of constant relatively to 
variable capital the tendency of the rate of profit, as 
shown, is towards a continuous fall. This means that the 
social power of production of labour is itself steadily in- 
creasing, though the rate of profit may fall temporarily 
for other reasons. " It is the nature of capitalist produc- 
tion and a logical necessity of its development, to give ex- 
pression to the average rate of surplus-value by a falling 
rate of average profit. Since the mass of employed living 
labour is continually on the decline, as compared to the 
knass of materialised labour embodied in productively 
consumed means of production, it follows that the unpaid 
portion of living labour which creates surplus-value must 
tontinuously decrease as compared with the amount and 
the value of the total capital invested and employed. And 
inasmuch that the proportion of the entire mass of sur- 
plus-value to the value of the total capital embarked consti- 
tutes the rate of profit this rate of profit must perpetually 
fall." 1 

It is not necessary to follow Marx's elaborate exposition 

i " Capital," Vol. Ill, pp. 183-186. Untermann's translation 
slightly modified. 



158 THE ECONOMICS OF SOCIALISM 

any farther. But we have here a manifest theoretical 
proof of how it comes about that the great capitals grow 
constantly bigger. They are forced by competition to 
embark larger and larger proportions of their industrial 
capital in machinery, raw materials, incidental materials; 
in constant capital, in short. In every department of 
production, from soap, cotton thread, oil refinery, iron and 
steel founding, food preparation, &c, &c.,, business is con- 
ducted on a larger and a larger scale. Small competitors 
are undersold and crushed out. Competition, the soul of 
capitalist production in the earlier stages, gradually ceases 
and monopolies in the shape of Trusts, Combines, Cartels 
become the dominant form, not only in direct industrial 
production, but in transport, distribution, finance, banking, 
&c. This vast power based upon the exploitation of labour- 
power can be met and controlled only by the organisation of 
vast co-operative associations, the direct interference of the 
community, or the uprising of the co-ordinated and disci- 
plined forces of the owners of labour-power, the wage- 
earning class itself. 



CHAPTER VI 

RENT 

It is still not unusual for economists to speak of rent 
as if in its present form, as payment for the temporary use 
of land, it had lasted through the centuries. But this is 
as erroneous as to speak of exchange as always prevailing 
under all forms of society. Eent has its history as 
exchange has its history; and the competitive and ground 
rents which are now the rule in Great Britain are quite an 
exceptional form of land tenure even at the present time. 
In the primitive communal societies rent, of course, was, 
and is, unknown. Whether the land settled and cultivated 
by the tribe or gens varied in quality, or was all equally 
good, made no difference whatever from the point of view 
of the division of the product among the members of the 
tribe or gens. The soil was co-operatively tilled, and the 
product was communally divided. Nor did this exclude, in 
many cases, a most elaborate and scientific system of culti- 
vation and irrigation. In such circumstances, as there was 
no individual ownership, so also there was no conception 
of rivalry for possession of the more fruitful tracts. At a 
later stage, when land was cultivated as personal or family 
property for a fixed term, and redistributed at the close of 
the term among the tribal families, rent was still unknown. 
Throughout ancient society, likewise, rent, in our English 
sense of the word, rarely existed. 

During the feudal period, the personal suit and service 
due to the superior lord for lands held, when it was changed 

159 



160 THE ECONOMICS OF SOCIALISM 

into payment in kind out of a proportion of the erop, or 
even converted into payments in money, was a totally dif- 
ferent thing from our modern rent. The historical growth 
of modern agricultural rent in Great Britain is — from 
the rent paid in labour or service by the holder to the over- 
lord; to rent paid in produce by the holder to the land- 
owner; thence to the equivalent money rent paid to the 
landlord; lastly, to the differential rent, paid by the capi- 
talist farmer in money to the landlord, for the use of a 
superior agent of production. 

Eent in the shape of the payment for land by cottier 
tenants, where the landlord, being in absolute possession, 
with needy and moneyless peasants all round him, is able 
to exact all the produce of the soil for himself, less the bare 
subsistence of the cottier tenants — this rent also is totally 
distinct from the rent which the well-to-do farmer pays to 
a landlord for the lease of a farm. This kind of cottier 
rent we can still see in the south and west of Ireland, all 
the " fair rent " enactments of the last forty years to the 
contrary notwithstanding. 

Again, rent paid by small farmers with small capital, but 
not wholly needy, who till their own holdings themselves, 
with the aid of their family, likewise differs from the 
system we see around us to-day in Great Britain. And 
the landlords who obtained rent under this state of things 
soon found a marked change for the worse, in the amount 
of rent they could get in proportion to the produce raised, 
when, owing to the improvements in methods of cultivation 
and the consequent necessity for the employment of a con- 
siderable capital in agriculture, the tenants who undertook 
to pay rent first estimated the profit on their capital at a 
satisfactory figure, before they would pay any rent at all. 



KENT 161 

Interest on farmer's capital formed a deduction from the 
total possible rent of the landlord. 

This last form of rent in its fully-developed shape — the 
form of rent, that is, paid in money by the farmer who 
owns capital, to the landlord who owns the land, for the 
privilege of tilling that land by agricultural labourers whom 
the farmer employs in order to make a profit out of the 
produce of their labour — this is the form of rent, so far 
as agricultural land in Great Britain is concerned, which 
we have first to consider. 

Obviously, this arrangement, by which a capitalist who 
happens to be a farmer takes land from a person recognised 
by society as the owner of the soil, and pays rent for it in 
order to make a profit for himself, brings the whole cultiva- 
tion of the farm so hired within the range of the rest of the 
system of capitalist production for profit. The landlord 
in such circumstances has generally himself advanced, or 
appropriated from others, capital in the shape of buildings, 
drainage works, &c, to improve his land; and receives the 
interest on that capital so advanced, together with the rent 
which we may assume to be paid for the bare use of the 
land itself. In practice it is exceedingly difficult, if not 
impossible, to separate these two portions of the rent. But 
the fact that the land when hired is used, primarily, for the 
purpose of obtaining a profit for the farmer out of the 
produce, differentiates this sort of land cultivation from 
every other. 

Thus the Irish cottiers, the Indian ryots, the peasant 
farmers and metayers of the whole continent of Europe, 
even most of the freehold farmers of North America and 
the Argentina, till the land, in the great majority of cases, 
under totally different conditions from those which prevail 



162 THE ECONOMICS OF SOCIALISM 

in England. If they have good land, and enough of it, 
their circumstances will be good ; far superior, of course, to 
those of the same class who till inferior soils or too small 
plots of good land. The fact that the American freehold 
farmer works his land with probably the best appliances 
obtainable, and that the ryots of India use the primitive 
tools of their ancestors, makes no more difference in regard 
to their form of economic production than the land-tax 
imposed by the Government of India turns the ryots into 
competitive rent-payers, or constitutes them capitalist 
farmers. Both American freeholders and Indian ryots are 
cultivating the soil under conditions and with objects that 
are totally distinct from the conditions and objects under 
and for which the English capitalist farmers work their 
holdings. Nor does the appearance of their food-stuffs on 
the same market, even though these food-stuffs are indis- 
tinguishable from one another, bring them closer to the 
English farmers in regard to the conditions of production 
existing in each case. 

Having thus, to some extent, cleared the ground, we are 
in a position to consider agricultural rent as it exists in our 
present capitalist society. This is the more important that, 
everybody being acquainted with rent in some shape, all 
are specially liable to be led astray by theories in connec- 
tion with this subject. Now what is agricultural rent? 

The theory of rent which finds widest acceptance at the 
present time, and has even been made the foundation of 
other theories which are put forward as explanations of the 
whole capitalist system, is the theory of Eicardo. In 
Bicardo's own words, " rent is that portion of the produce 
of the earth which is paid to the landlord for the use of 
the original and indestructible powers of the soil." This 



RENT 163 

manifestly applies only to agricultural land. It is what is 
called by many " economic rent " as opposed to the popular 
conception of rent. Eent in the popular sense, of course, 
means the payment made for the use of any immovables; 
and is sometimes still further extended, as when we speak 
of the rent of type for printing, kept ready for use. In 
the general sense also rent covers the returns on capital 
already expended in improvements of the land when it is 
rented. Eicardo's is a much narrower definition than 
either of these. 

When Eicardo spoke of "the original and indestructible 
powers of the soil " as the source of the landlord's rent, he 
was no doubt as well aware as we are that whatever may be 
the original powers of any soil, none of them, except its 
position, can properly be called "indestructible." How- 
ever fertile a soil may be, continued cropping will destroy 
its fertility, and call for the application of successive doses 
of manure to restore its exhausted powers. It is still a 
moot question whether Eicardo intended to include locality 
within the scope of his original definition. Assuming that 
he did, it is obvious that, from the rent-exacting point of 
view, this "power/' also, is by no means indestructible; 
seeing that a shifting of population, or the change of the 
tidal flow, may entirely destroy, or greatly deteriorate, the 
rentability of any plot of land which owed its " original " 
advantage, from the landlord's point of view, to the neigh- 
bourhood of a great city, or its vicinity to a navigable river, 
or to the sea. 

It is quite clear, at any rate, that it is not the soil itself 
but the society living upon that soil which is the main cause 
of Eicardian as of other rent. The social causes, as Mr. 
Posnett pointed out, are "(1) Individual ownership un- 



164 THE ECONOMICS OF SOCIALISM 

shackled by State interference; (2) individual occupancy 
by a farming class likewise unshackled; and (3) the exist- 
ence of labourers perfectly free to compete." 

In short, the social causes are the individual and private 
ownership of land, plus the application to the land of the 
capitalist system of production, with its private ownership 
of tools and raw materials, and its free labourers who 
have no property to sell except the power to labour in 
their bodies. The physical causes of Eicardian rent are 
"(1) The limited quantity of land; and (2) the varying 
degrees of its fertility/' 

And Eicardo himself explains how agricultural rent 
develops, and its effect when developed, after the following 
fashion : " On the first settling of a country in which there 
is an abundance of rich and fertile land, a very small pro- 
portion of which is required to be cultivated for the support 
of the actual population — or, indeed, can be cultivated 
with the capital which the population can command — - 
there will be no rent. If all the land had the same prop- 
erties, if it were unlimited in quantity and uniform in 
quality, no charge could be made for its use, unless where 
it possessed peculiar advantages of situation." 

Here Eicardo speaks of situation for the first time; but 
a purely social and relative cause such as situation surely 
belongs to a far wider economic category than "the orig- 
inal and indestructible powers of the soil " on which he 
bases the landlord's claim to rent. "It is only, then, 
because land is not unlimited in quantity and uniform in 
quality, and because, in the progress of population, land 
of an inferior quality, or less advantageously situated, is 
called into cultivation, that rent is ever paid for the use 
of it. When, in the progress of society, land of the second 
degree of fertility is taken into cultivation, rent commences 



KENT 165 

on that of the first quality, and the amount of that rent 
will depend on the difference in the quality of these two 
portions of land/' "If good land existed in a quantity 
much more abundant than the production of food for an 
increasing population required, or if capital could be indef- 
initely employed without a diminished return, there could 
be no rise of rent; for rent invariably proceeds from the 
employment of an additional quantity of labour with a 
proportionately less return." 

Again : " The value of all commodities is always regu- 
lated, not by the less quantity of labour that will suffice 
for their production under circumstances highly favour- 
able, but by the greater quantity of labour bestowed by 
those who continue to produce them under the most unfav- 
ourable circumstances; that is, the most unfavourable 
under which the quantity of produce required renders it 
necessary to carry on the production/' And as a result of 
this — " It has been justly observed that no reduction would 
take place in the price of corn although landlords should 
forego the whole of their rent. Such a measure would only 
enable some farmers to live like gentlemen, but would not 
diminish the quantity of labour necessary to raise raw 
produce on the least productive land in cultivation/' 

Now, we have here the statements, irrespective altogether 
of historic development, that rent is due to the extension 
of the " margin of cultivation " to less fertile soils as popu- 
lation increases ; that the application of successive amounts 
of capital and labour to the same tract of land always 
results in a less proportional quantity of produce, a view 
which is known as the theory of " diminishing returns " ; 
and that, owing to the law which governs the exchange of 
commodities on the market, the price is not affected by the 
exaction of rent for the use of a more favourable instru- 



166 THE ECONOMICS OF SOCIALISM 

ment of production, inasmuch that, speaking generally, 
nobody can tell whether the product offered for sale has 
been grown on good land or bad. 

In these conditions, "Kent is always the difference be- 
tween the produce obtained by the employment of two 
equal quantities of capital and labour " on the same extent 
of land, and "Whatever diminishes the inequality in the 
produce obtained on the same or on new land tends to 
lower rent; and whatever increases that inequality neces- 
sarily produces an opposite effect and tends to raise it." 

Put in a more concrete shape, the meaning is this: 
Here are two tracts of land each of two hundred acres in 
extent. The one tract returns just so much corn as will, 
at the ruling price of grain on the market, pay for the 
labour employed, and the average rate of interest and 
average profit on the capital embarked; let us suppose this 
to be 20 bushels of wheat to the acre. Here we are at the 
"margin of cultivation," other things remaining as they 
are. For such land the landlord can demand no rent. 

But there is the other tract of 200 acres which produces 
28 bushels of wheat to the acre, as a return for the applica- 
tion of an equal amount of capital and labour, instead of 20 
bushels. That is to say, 20 bushels out of the 28 pay the 
labourers for their labour at the current rate of wages, 
and repay the capitalist his advances, with current rate of 
interest and average profit, out of the price which their sale 
realises on the market. There remain 8 bushels over. 
The money value of these 8 bushels, on the average, the 
landlord can ask for and get as his share, as the private 
owner of the land, for the use of it as an agent of produc- 
tion for profit. 

Now, if, owing to increase of population on the same 
extent of land, a third tract of 200 acres, of less fertility, 



KENT 167 

is brought under cultivation, giving a smaller return, say 
15 bushels per acre, to the same amount of capital and 
labour ; then a rise of price will be established, other things 
remaining the same. The margin of cultivation has been 
extended. As a result, not only will the 20 bushel land 
now be able to pay a rent of 5 bushels to the landlord, the 
previous assumption holding good, but the 28 bushel land 
will pay a rent of 13 bushels to the landlord instead of 8; 
that being the difference between the 15 bushel land whiea 
it will just pay to cultivate at the new range of prices, and 
the land which, for the same expenditure of capital and 
labour, returns 28 bushels. 

In short, as Eicardo says elsewhere, the price of the 
larger amount of grain, or other produce, returned by 
superior land, goes to the landlord in the form of rent, 
instead of to the producer or the consumer; after the 
labourer has been paid his wages and the capitalist has 
received his profit on his capital. 

Such, in brief, and without taking account of variations 
of supply and the like, is the Eicardian theory of rent, in 
the form given to it by Eicardo himself. He, as is well 
known, was anticipated by Anderson to some extent, and 
owed the completeness of the theory, from his point of view, 
to the work of Adam Smith, Malthus, and West. Eicardo 
lived through the great French wars, during which period 
the island of Great Britain furnished an apt illustration of 
his theory. The importation of foreign grain was prac- 
tically excluded; the population was steadily increasing; 
the capitalist system of production was in full swing on 
the land ; the landlords were in control of the soil as private 
owners; and the necessity for the extension of the area of 
food-production brought even the worst lands into tillage, 
and thus extended the margin of cultivation. In such 



168 THE ECONOMICS OF SOCIALISM 

circumstances the price of grain rose enormously, owing to 
the greater quantity of social labour embodied in food- 
stuffs, and the landlord class, as leases fell in, were able to 
demand constantly-increased rents for the superior soils 
they owned, as compared with the inferior soils that neces- 
sity called into cultivation. 

At this period, and under these circumstances — the 
application of machinery to agriculture, scientific manur- 
ing, and intensive cultivation, with improvements in breed- 
ing and rearing live-stock, being still in their infancy — 
Eicardo's theory might well be accepted without criticism. 
The price of agricultural commodities continually rose 
owing to the rise in the cost of production in social labour 
as determined by competition; the price of manufactured 
commodities fell at the same time, owing to the introduc- 
tion of machinery which reduced their cost of production 
in social labour as determined by competition. 

But the deduction drawn by many of his contemporaries, 
and even, incidentally, by Eicardo himself, that the land- 
lord costs nothing to the community, seeing that his rent 
did not " enter into " the price of food, is not worth refuta- 
tion. As well might we argue that the capitalist costs 
nothing to the community because his profit does not 
" enter into " price, but is squeezed out of the worker 
before the price is realised on the market. 

The law of diminishing returns to the increasing amount 
of capital applied to any given plot of land which is men- 
tioned above is also worthy of a little further considera- 
tion. The meaning of it is that the more labour and 
capital expended in cultivating any particular agricul- 
tural area, though their application may give a greater 
amount of produce, this additional quantity is less in pro- 
portion than was the return to the original amount of 



BENT 169 

labour and capital expended on the same area. In other 
words, if the expenditure of £10 an acre on a farm results 
in an output of 28 bushels of wheat to the acre, then the 
expenditure of a second £10 will not produce a return of an 
additional 28 bushels or anything like it. That, speaking 
generally, is true enough. 

But it is likewise true that up to a certain point on all 
land an increased application of capital and labour — which 
of course means in one form or another an increased 
application of labour — increases the total amount of the 
produce both actually and relatively. This is now gener- 
ally admitted, and by the admission another hole is 
knocked in the theory of rent as formulated by Kicardo, 
unless further modifications and limitations are intro- 
duced. Professor Marshall, who cannot be accused of 
being, as a rule, very definite about anything, commits 
himself definitely on this point of increasing and dimin- 
ishing returns to capital expended on cultivation of the 
soil; and even tries to apply it to the case of the building 
of lofty dwellings in great cities as well as to agricultural 
land. Whether this last is correct or not, it is safe to 
say that it has nothing whatever to do with the theory as 
propounded by Bicardo. 

It will be observed, further, that Eicardo took no account 
of the historical growth of rent. Just as we had the 
aboriginal hunter or fisher exchanging his game or his 
catch on the most approved principles of nineteenth-century 
commerce, so we have a society in all its capitalistic panoply 
of landlord, capitalist farmer and propertyless labourer 
plopped down into a new country, picking out the most 
fertile soils to begin with, allowing the landlords to appro- 
priate them, extending the cultivation to the poorer soils 
as population increased, and so on, as required to suit the. 



170 THE ECONOMICS OF SOCIALISM 

needs of the theory. This was, perhaps, excusable in a 
treatise on economics written ninety years ago by a man 
of genius whose very errors are instructive. But when a 
journalistic joker turns farceur after the following fashion, 
and is even taken seriously by people with no appreciation 
for humour of this sort, it is time to protest : " Figure to 
yourself the vast green plain of a country virgin to the 
spade, awaitiug the advent of man. Imagine then the 
arrival of the first colonist, the original Adam, developed by 
centuries of civilisation into an Adam Smith prospecting 
for a suitable patch of Private Property. Adam is, as 
Political Economy fundamentally assumes him to be, f on 
the make/ therefore he drives his spade into, and sets up 
his stockade around the most fertile and favourably situ- 
ated patch he can find." Then come others who can't get 
such good land as this original settler, who has over them 
an advantage of £500 a year. " Here is a clear advantage 
of £500 a year to the first comer. This £500 is economic 
rent. It matters not at all that it is merely a difference 
of income, and not an overt payment from a tenant to a 
landlord. The two men labour equally; and yet one gets 
£500 a year through the superior fertility of his land and 
convenience of its situation. The excess due to that fer- 
tility is rent ! " 

The full force of this argument will be seen at once 
from the fact that America was, some three hundred years 
ago, "a country virgin to the spade." It has since been 
well colonised. Yet rent of agricultural land, in the form 
of Eicardian rent paid to the landlord, is still almost 
unknown. Consequently, we are told that " it matters not 
at all " whether the farmer appropriates the whole product 
of his farm to himself or whether he pays rent to a land- 
lord ! He pays rent to himself ! ! 



KENT 171 

The truth is, as we have seen, that Kicardian rent is 
quite an exceptional form of payment for the holding of 
land. Eent of agricultural land in that form depends 
upon, and constitutes a part of, a fully-developed capitalist 
society. It is the same with rent as with every other eco- 
nomic category: all are dominated and determined by the 
stage in the capitalist system of production which the 
surrounding society has reached. 

Land to-day in Great Britain is regarded by the farmer 
with capital, who rents it from the landlord, from pre- 
cisely the same point of view as a machine, for using which 
he pays a royalty to the inventor, is regarded by the indus- 
trial capitalist. In the one case the capitalist farmer pays 
a more or less heavy rent to the landlord for the use of a 
portion of the soil of superior fertility to the worst in 
tillage: in the other case the capitalist manufacturer pays 
a rent to the owner of the patent for the use of a mechan- 
ical appliance of superior productive power to the best 
then applied. In each case the capacity to extract payment 
arises from a social convention, which recognises the private 
property of the landlord in the land and of the patentee, or 
his assigns, in his invention. And, in both cases alike, the 
capitalist regards the employment of the land, or the 
mechanical contrivance, as a means of making profit for 
himself out of the production of saleable commodities 
created by the labour of his workers. 

Thus the capitalist who hires land in present conditions 
does so in order to extract surplus value from his labourers 
and therefore make a profit out of it. 

This same land is regarded by the landlord as simply the 
engine whereby he may obtain from the capitalist farmer 
a money rent and a money rent alone. No personal obliga- 
tion goes with the contract as a rule, and many landlords 



172 THE ECONOMICS OF SOCIALISM 

have never seen some of their estates. It is purely a pecu- 
niary connection ; for payment in kind, long as it endured, 
is now practically unknown in England. 

Land rented by the landlord and farmed by the capitalist 
farmer is looked upon by the agricultural labourer, in the 
third place, much as a factory is regarded by the " hands " 
who work in it. Divorced from any ownership, or posses- 
sion, or interest in the soil, as completely as any town 
artisan, the land is to him simply the raw material on which 
he toils to get his wages. He forms the third member in 
our agricultural trinity. But not a trinity in unity by 
any means. It is as compact a little set of antagonisms 
as any in our society. For the agricultural labourer, if he 
has any sense at all, — and what little he had has been 
almost starved out of him — regards both the farmer and 
the landlord as his natural enemies; but the farmer as, on 
the whole, the worse of the two, seeing that, to use Adam 
Smith's phrase, he is engaged in a " constant conspiracy " 
to keep down or to cut down wages. 

The farmer is, of course, at war with the agricultural 
labourer on this point of wages, though it would in many 
cases have paid him well to double the rates of pay in return 
for the far better work he would get. He also regards the 
landlord as his natural enemy, unless, indeed, he happens 
to have got his farm on lease below the market value, 
which on large estates was, and even now is, not unknown : 
the landlord deliberately sacrificing direct pecuniary advan- 
tages in order to retain the personal or political loyalty 
of his tenants. 

The landlord himself knows that his interests and those 
of the farmer are economically at variance, but he is unable 
to make common cause with the agricultural labourer 
against the farmer; because that would leave him without 



EENT 173 

tenants, and farming with a bailiff rarely proves advan- 
tageous; because, also, he believes that high wages and 
independence for the labourers would in the long run mean 
low rents for the landlord — perhaps worse. 

Such is the agricultural trinity of antagonistic "free- 
doms " on which the Eicardian theory of rent is based : a 
landlord free to get as high rent as he can; a farmer free 
to get as much profit as he can; a labourer free to get as 
much wages as he can. All three living in an atmosphere 
of free sale of commodities in a competitive market. 

Rent, then, in its modern sense of Eicardian rent, is 
due to : 

(a) Private property in land; 

(b) Capitalist production for profit; 

(c) Unrestricted competition among propertyless 
labourers. 

Now, however, comes Professor Amasa Walker, who pro- 
fesses himself to be a " Eicardian of Eicardians," and, in 
a book written by him in defence of the theory, tells us 
that the United States and Ireland are the only two con- 
siderable countries in which rents closely approximating to 
true competitive rents have ever been habitually paid! 
" In England, however," he proceeds, " the very country of 
Eicardo, competitive rents have never been exacted." 
This is a strange sort of defence. 

For in Ireland, to begin with, one of the chief persons — 
it is fair to call him the chief person — in the Eicardian 
trinity is " conspicuous by his absence." The capitalist 
farmer who pays the landlord rent in return for the use 
of " the original and indestructible powers of the soil " is 
rarely to be found in that part of the sister island to which 
Professor Walker specially refers. And the land for which 
the cottier tenants paid such exorbitant rents, in propor- 



174 THE ECONOMICS OF SOCIALISM 

tion to its cultivable value, so far from being originally 
of superior fertility, has, in the majority of cases, only 
been made fit for tillage at all by the interminable toil of 
those same tenants and their ancestors, the result of which 
the landlord has grabbed as his own. In the United 
States, on the other hand, with which Professor Walker 
ought to be very well acquainted, the great majority — it 
may be said almost the whole — of the farmers own their 
farms in freehold; and it would take a very elastic defini- 
tion of rent to bring in the interest on their mortgages as 
a part of such rent. 

Let us now consider the Eicardian theory from the point 
of view of the recent history of agriculture. Since Eicardo 
died, enormous changes have taken place; but even at the 
time when he wrote his statements stood in need of modi- 
fication. For example, the statement that rent does not 
enter into price, or is not the cause of price, simply means 
that private property in land is not the cause of agricul- 
tural prices, or that the prices of agricultural products do 
not depend upon the private ownership of land. But it 
would be easy to show that private ownership in land in 
Great Britain since Eicardo's day has restricted the output 
of home agricultural products, which is a direct economic 
drawback to the whole community, and may in conceivable 
circumstances very possibly have enhanced price. 

Much more important, however, than this is the effect 
of American, Indian, and Australian competition on the 
price of English agricultural products. Population has 
been increasing in Great Britain rapidly in the past fifty 
years; yet so far from there having been an increase in 
the rent of agricultural land, it is notorious that the rents 
of such land in Great Britain fell from forty to 
fifty per cent, within the same period, and that in some 



KENT 175 

counties large tracts of land have gone out of cultivation 
altogether. To what is this due ? In the case of American 
competition, undoubtedly, first, to the enormous develop- 
ment of cheap transport as compared with the rates charged 
by English railways, thus bringing the wheat centres of 
America within thirty miles of London, reckoned by 
freight; and, secondly, to the application of machinery to 
the cultivation of the soil on a large scale, thus reducing 
the cost of production of cereals by the same means that 
the cost of production of manufactured goods had been 
previously reduced. With India, in addition to the cheap- 
ness of freight for wheat, there was until lately a mechan- 
ical currency cause at work tending to reduce prices. 
This was due to the fact that the rupee had the same 
purchasing power in India that it had before the great fall 
in the value of silver relatively to gold. 

Clearly, it is not the superior fertility of the soil in 
either case which has enabled the producers in the United 
States and in India to undersell English farmers and 
knock down English rents. Not at all. A series of causes 
connected with the development of society at the end of 
the nineteenth century has been at work, and " the original 
and indestructible powers of the soil," aided by improved 
processes of production and an extraordinary cheapening 
of transport elsewhere spelt to the English landlord con- 
tinuously falling rents in the face of a continuously-increas- 
ing population. 

Nor was this the case in regard to cereals alone, though 
the rent of agricultural land is chiefly dependent on their 
price. Butter, eggs, fresh fruit and canned fruit, cheese, 
fowls, even meat, fell rather than rose in price in conse- 
quence of foreign imports, and the landlord suffered 
from this cause as well. At the present time the popula- 



170 THE ECONOMICS OF SOCIALISM 

tion of Great Britain draws at least five-sixths of its total 
supply of wheat and half its total supply of food from 
sources outside of this island. So greatly has the area of 
food cultivation on which the population can draw been 
extended, so largely have the returns to effective machine 
cultivation of the soil developed under favourable condi- 
tions, that the production of food now stands on much the 
same footing as the production of manufactured goods. It 
was not that the " margin of cultivation " varied of itself, 
but that the social development, as manifested in the facil- 
ities for tillage and transport, had gone on at so great a 
rate as to revolutionise the whole system. 

Whither does all this lead us? To the truth that the 
hire of land, like the hire of any other instrument of pro- 
duction for profit under capitalism, is governed by the 
consideration of a series of economic circumstances by no 
means wholly covered by fertility, or even situation. 
American agricultural production, for instance, averages 
but 11 to 15 bushels of wheat to the acre. English agri- 
culture contrives still to obtain an average of more than 
28 to 34 bushels of wheat to the acre. Land of by no 
means always first-rate quality, therefore, thousands of 
miles distant from one of the chief markets for its prod- 
uce, enabled its freehold farmers to hold their own and 
more, in competition with other land producing a higher 
average return to the acre close to that same market. 

Hence it might well happen that it would be better for 
a farmer who understood his business to pay a considerable 
rent for a farm in the valley of the Mississippi, in Dakota, 
or on the Sacramento plain, in order to make a profit 
by shipping grain to London, rather than that he should 
occupy a farm at a low rent, or at no rent at all, in Devon- 
shire or Suffolk. This, too, although the latter soil might 



KENT 177 

even be the more fertile, as well as possess the advantage 
in point of actual situation. But this will only fit in with 
the Bicardian theory on the supposition that we to a great 
extent neglect natural fertility, which is the keystone of 
that theory, and introduce a number of other considera- 
tions which are entirely omitted in Eicardo's exposition of 
the causes of agricultural rent. 

Nevertheless, if we assume that all agricultural land has 
the same advantage in the matter of transport and is tilled 
with equal skill, knowledge, and command of machinery, 
then the land which is most fertile will, provided the situ- 
ation in reference to market is equally good, command a 
competitive rent under capitalism proportionally in excess 
of that which will be paid for less fertile soils; and 
Eicardo's theory of agricultural rent depending on margin 
of cultivation is to that extent true. But even so, in old 
settled countries, that same fertility is quite as much due 
to the expenditure of capital and labour on the land in the 
past, as it is to those " original and indestructible qualities 
of the soil " which Eicardo postulated. 

Agricultural rent, however, by no means exhausts the 
categories of competitive rent under capitalism. Dead- 
rents and royalties paid for mines are, in like manner, 
governed by the same rule that applies to the differential 
rent of land. For instance, it may be just worth the while 
of the owner of mineral land, coal, iron or lead, to work it 
himself with his own capital, or to let portions of it to 
working miners to work on tribute, he receiving an agreed 
part of the minerals raised. But the same mines, not being 
rich, or the seams or veins not easily accessible, would not 
offer sufficient inducement in the way of profit for a capi- 
talist to undertake to develop the property; paying to the 
owner a royalty of fourpence or sixpence a ton, or five per 



178 THE ECONOMICS OF SOCIALISM 

cent, on the gross return. Here, therefore, is no dead- 
rent or royalty. This is the margin of exploitation for 
the time being. 

All mineral lands of superior quality equally well placed 
with these will then command a royalty in proportion to 
their greater richness, or the less difficulty and lower cost 
of extraction. Similarly, water-power, fisheries, and so on, 
command a differential rent, according to their relative 
superiority as agents of production. In every case similar 
products fetch the same price on the market, that price 
being regulated by social cost of production determined by 
competition. 

Eent in such cases arises, as in the case of agricultural 
land, by the demand of the private owner for a share of 
the produce in return for the temporary cession to the 
capitalist of his recognised legal right to do what he likes 
with what society pleases to allow him to call his own. 
Here, too, manifestly, rent arises from a monopoly of a 
portion of the earth's surface accorded by society to an indi- 
vidual. The amount of that rent, under the capitalist 
system of production, is determined by the relative supe- 
riority of that portion of the earth which he owns to 
another portion which it only just pays at the then existing 
price of the product to develop. 

We now come to ground-rent, the rent of land in cities. 
In this case we find ourselves at once quite outside " the 
original and indestructible powers of the soil." Even 
situation becomes a purely social matter. Here, if any- 
where, it is clear to everybody that " rent arises from 
society and not from the soil." Some of the greatest cities 
in the world have grown up, not where it would seem most 
convenient to locate them, but in situations quite the reverse 
of advantageous. Paris itself being a marked instance of 



KENT 179 

this. Yet, when a considerable population has established 
itself at any centre, or trade, administration and general 
use have accustomed the nation or the world at large to 
visit and deal at this or that city, it takes a long period to 
bring about any great change. 

Indeed, nothing short of such a complete diversion of 
traffic as that which took place after the conquest of Con- 
stantinople and the interruption of the old trade routes to 
the East seems capable of shaking the supremacy of a great 
historical city, whether its situation is naturally favour- 
able like that of Genoa, or more or less accidental, as in 
the case of Venice or Amsterdam. On the other hand, we 
can see plainly that mere superiority of situation does not 
necessarily carry with it a great population. 

No more remarkable instance of this exists than the con- 
trast between Melbourne and Geelong. The latter city, 
lying about thirty miles from Melbourne, has a fine harbour, 
is closer to the great mineral and agricultural resources of 
the Colony of Victoria, and, as the centre of a large popu- 
lation, would be easy to drain. Melbourne has no better 
port than an open roadstead, is more remote from the 
provincial districts of greatest wealth, is very badly situ- 
ated for drainage, being on a level for the most part with 
the sluggish Yarra Yarra, and possesses no advantages in 
the surrounding country to compensate for these draw- 
backs. Nevertheless, Melbourne has a population of 
700,000 against the 30,000 of Geelong; the ground-rents, 
or the purchase price of sites, in Collins Street and Bourke 
Street are as high as those in the City of London; while 
the rents in the smaller city are, of course, comparatively 
trifling. 

Similar, though not such striking, examples of higher 
ground-rents being obtained for what appear to be origi- 



180 THE ECONOMICS OP SOCIALISM 

nally and actually, from the point of view of convenience, 
less favourable sites are common. Moreover, the tendency 
of great cities, when once established, is, under existing 
conditions, to grow continuously bigger and bigger. The 
set of population is steadily from the country to the towns. 
Nor is this the case only in old-settled countries. Even in 
America and the Colonies the same tendency can be traced. 

As a result of this social movement, hundreds of thou- 
sands, and even millions of people are now concentrated 
within comparatively narrow limits ; thus huddled together, 
not, as in the Middle Ages, for the sake of the protection 
which the fortifications and common defence of the armed 
citizens gave them against the nobles and brigands without, 
but by a series of economic causes which dominate them, 
instead of being dominated by them. 

Consequently, competition for the favoured spots within 
these narrow limits becomes, from social causes, very keen, 
and the gain of the owners of the land on which the cities 
are built is proportionately great. Thus the actual ground- 
rents of London — the amount of money paid by us 
Londoners for the privilege of occupying the site of our 
own city, to a handful of persons whom we choose to con- 
sider as entitled to exact it from us — reach the total of 
more than £20,000,000 a year, and they are increasing at 
the rate of £200,000 yearly. All this goes into the pockets 
of the owners of the land, not assuredly from any inherent 
virtue in the soil itself, still less in the landlords them- 
selves; but from the social development which is going on 
in every direction, and which is legally compelled by these 
gentlemen to " stand and deliver " every three, six, or 
twelve months a fine full ransom in the shape of rent. 

The increase of rental value, due solely to the social 
action of the inhabitants of great cities, is denounced by 



KENT 181 

some as "unearned increment/' and under that name it 
has been a favourite topic for land reformers and munic- 
ipal reformers, who are often stone-blind to other forms 
of monopoly with their unearned incomes. Yet this un- 
earned increment of rent, due to social causes and realised 
by social convention, constitutes only a portion of the 
entire unearned surplus-value which private ownership of 
the means and instruments of production enables the active 
capitalist class to extract from the unpaid labour of the 
wage-earners and then divide with others. 

City ground-rents themselves are divided into several 
categories. First, there are the ground-rents which arise 
directly from the industrial surroundings and constitute a 
deduction, for the benefit of the landlord, from the surplus- 
value of the manufacturer, or the profits of the distributor. 
Under this heading come the ground-rents of factories and 
workshops as well as the ground-rents of wharves and 
shops. These rents are high or low according as the plot 
of land for which rent is demanded is situated favourably 
or otherwise for production or trade. They are paid by the 
occupiers as a portion of the cost of the instruments 
necessary to them for the making, or the realising, of a 
profit. 

Then there are the luxury ground-rents, as we may call 
them. These are the ground-rents paid to the landlords, 
not for the purpose of obtaining any advantage in indus- 
trial business by the use of the plot of land paid for, but 
for the enjoyment of the advantages, social, sanitary, or 
other, connected with a particular site. Such rents are 
paid by the wealthy out of the surplus value already taken 
and paid over to them from the unpaid labour of the work- 
ers. Here, as elsewhere, competition determines the 
amount of the actual rent to be paid. Landlords, how- 



182 THE ECONOMICS OF SOCIALISM 

ever, commonly exact less than the full rent they might 
get for sites of this sort, in return for capital expended 
by the leaseholders in improvements, building, and so on. 
But the landlords themselves generally obtain enhanced 
rents from public improvements to which they contribute 
nothing at all, as well as from the increasing pressure of 
population. 

Here, of course, fashion, which is a purely social force, 
has a great deal to do with the amount of the rents which 
are demanded and paid ; and as fashion changes within the 
limits of a city, with little reference to the character of the 
soil, so rents rise and fall. Districts which once com- 
manded very high ground-rents on becoming unfashionable 
are estimated at a lower level of rent; while districts, for- 
merly unoccupied or covered by a low class of dwellings, 
become fashionable and return extremely high ground- 
rents to their owners. 

A third class of ground-rents are those which are paid 
for the sites of working-class dwellings. These are fre- 
quently much higher than either the situation or the char- 
acter of the houses erected on the sites would seem to 
warrant. Competition for lodgings which are not far from 
their work compels labourers to pay high rents for the 
worst possible accommodation, a drawback so far only par- 
tially removed by improved transport. These ground- 
rents, and the rack-rents of the dwellings from which they 
are deducted, constitute in reality the exaction of a direct 
tribute from the wage-earning class, in addition to the sur- 
plus value indirectly squeezed out of them, in the form of 
unpaid labour embodied in commodities. 

The rents of land converted into a money payment on a 
competitive basis thus become a secure income to the 
owner of the land rented, and they have become in the 



KENT 183 

main so secure, especially in respect to the ground-rents 
of great cities and market-garden land adjacent to them, 
that their value is estimated at many years' purchase; 
twenty to twenty-five years' purchase being frequently 
given for such rents. Agricultural land, also, is not un- 
frequently bought to return in rents, after all outgoings, 
no more than three per cent, upon the capital sum paid. 
When this is done, the facts are turned round the other 
way, and it is argued that owners of land are obtaining 
such a low interest upon their invested capital that they 
are really benefactors to society by accepting it. The truth 
being that it is the very certainty of being able to obtain 
the fruits of other people's labour, under legislative enact- 
ment and social convention, which gives so large a capital 
value to the rental paid. 

Again, both in the case of agricultural land and urban 
land, the landowner obtains, in addition to his rent, the ad- 
vantage of such improvements as have been made by the 
tenant. Even compensation for unexhausted improve- 
ments does not wholly save the really capable and thrifty 
farmer from contributing of his capital and the labour of 
his agricultural labourers to increase the value of the mo- 
nopoly which the private ownership of land confers upon 
the landlords in a thickly-peopled country. In cities this 
is even more apparent. Apart from the unearned incre- 
ment of rent, as. it is the fashion to call it, due to the 
higher competitive value of land in crowded industrial cen- 
tres as the population increases, the landowners have an- 
other great advantage, which they use to the utmost as 
against the population, at any rate in Great Britain. They 
refuse to part with the freehold of their land, and will let 
it only on building leases, which tend to get shorter and 
shorter. 



184 THE ECONOMICS OF SOCIALISM 

Thus the system of private landownership, in a country 
where capitalist production is fully developed, involves bad 
tillage in agriculture and bad buildings in towns. The 
farmer who takes the long lease of a farm, having no real 
security of tenure, is careful not to leave the land which 
he has rented in any better heart at the end of his lease 
than it was at the beginning. It is, therefore, not uncom- 
mon to see land, taken on lease for a term of years, admi- 
rably farmed for about half or two-thirds of the period, and 
then gradually let down again to its original level, so that 
the landlord may not receive a portion of the farmer's own 
capital, in addition to his rent, as a gratuity on leaving. 

How prejudicial this is to the interests of the community 
it is unnecessary to enlarge upon ; nor how harmful, even to 
the labourers, who, in addition to having to provide the 
landlord with his rent and the farmer with the interest on 
his capital and his profit, in return for subsistence wages, 
are liable to be taken on and thrown off, as it suits the 
farmer to work his farm on the higher or the lower scale. 
All this, over and above the growing uncertainty of the la- 
bourers' position, owing to the introduction of labour-sav- 
ing machinery on the land and the substitution of pastoral 
for arable farming. 

In the towns the same anti-social rule governs building 
operations under similar conditions. Building leases, for 
60 to 99 years, granted in the majority of cases to builders 
whose sole object it is to obtain a profit by enhanced 
ground-rents, or by the sale of the carcasses of the houses 
which they run up — such leases as these constitute a direct 
premium on jerry-building. At the end of the lease the 
houses built upon the land fall in to the ground landlord, 
and it is to his interest that they should be well-built. But 
he cannot push his restrictions too far in this direction, or 



RENT 185 

he would fail to get capitalists to come in and build upon 
his land. 

Construction for profit, on the chance of meeting a grow- 
ing demand at a large increase of rent, consequently entails 
scamping in building, as production for profit entails adul- 
teration in trade. And where this system of speculative 
building on leasehold land is pushed to its extreme limit, 
as in London, the class of dwellings and warehouses pro- 
vided are nothing short of disgraceful. The drawbacks to 
the community, from every point of view, are so great that 
gradually public authority is beginning to restrict the 
licence of the landlord and the capitalist in this direction ; 
but no permanent change for the better can be brought 
about so long as private ownership of land continues. 

It seems, therefore, that a wider definition of the rent 
of land under capitalism is needed than that given by 
Eicardo, and the following is suggested: 

Rent of land is that portion of the total net revenue 
which is paid to the landlord for the use of plots of land 
after the average profit on the capital embarked in develop- 
ing such land has been deducted. 

This definition covers not only the rent paid for agri- 
cultural land, but also the dead-rent and royalties paid 
for the right to extract minerals and the ground-rents paid 
in the cities. It likewise places rent in its proper position 
in the economic and social arrangements of to-day. 

Contrary to appearances, the capitalist, even in the mat- 
ter of such a primary agent of production and habitation 
as the land, is enabled to secure his own terms as against 
the landlord for the employment of his capital, when land 
is brought under cultivation, when mines are developed, 
and when town sites are built upon. When leases fall in 
and the landlord becomes owner of tenants' improvements 



186 THE ECONOMICS OF SOCIALISM 

as well as of the land, or when the landlord tills, or builds 
upon, his own land, or mines for his own profit, then rent 
and profit or interest on capital are necessarily merged in 
one rack-rent return. 

From what has been said, it is easy to draw the conclu- 
sion that confiscation of " economic rent," supposing it to 
be possible to arrive at what economic rent really amounts 
to in any country, or the confiscation of all rent of land of 
every sort, would not affect the position of the working por- 
tion of the community, unless the money so obtained were 
devoted to giving them more amusement, to providing them 
with better surroundings, and the like. Competition for 
employment under capitalist control would go on as before. 
Workers' wages would undergo no increase whatever, nor 
would their social status be in any way improved. The 
capitalist, however, would be more dominant than ever, and 
the competition for subsistence wages would continue 
among the propertyless wage-earners. 

In fact, the attack upon competition rents is merely a 
capitalist attack. That class sees a considerable income 
going off to a set of people who take no direct part in the 
exploitation of labour ; and its representatives are naturally 
anxious to stop this leakage, as they consider it, and to re- 
duce their own taxation for public purposes by appropriat- 
ing rent to the service of the State. That is all very well 
for them. 

But to the workers it makes no difference whatever how 
the surplus-value obtained by the incorporation of their 
unpaid labour in commodities is divided up. Whether the 
landlords take one-fifth and the capitalists four-fifths, or 
the capitalists absorb the whole five-fifths, concerns the toil- 
ers not at all. They would not get a farthing of the money 
in any case: no matter how the burdens were shifted, the 



KENT 187 

men and women at the bottom would still have to bear the 
whole weight. 

This is why proposals for a single tax upon "land values" 
have always been ridiculed by economists who know their 
business, as failing to offer any solution of the land ques- 
tion, or of any other of the pressing social problems of the 
day. The only result of the confiscation of competitive 
rents or royalties by the State, and the application of the 
revenue thence derived to the reduction of taxation, would, 
as before remarked, be the strengthening of the hands of 
the capitalist class. For State ownership of rent by itself 
does not check in the least degree the operations of capital, 
nor does it involve in any sense the establishment of co- 
operative production on the land. 

So determinedly do some, however, stick to this rent 
theory that they even contend that, under a Socialist or- 
ganisation of society, when co-operation had been substi- 
tuted for competition in every department of production 
and distribution, rent of land would still exist. But the 
rent of superior soils, or of superior sites, arises from pri- 
vate property in those soils or sites, and is based upon di- 
vision of labour and antagonistic classes. 

When private property in land ceases, therefore, when 
human beings cease to strive against one another, and an- 
tagonistic classes cease to be, rent will cease too. Eent, in 
short, will no more exist under the Communism of the fu- 
ture than it existed under the Communism of the past; 
and the very idea of rent being exacted under Socialism, 
in order to stop a fight for a dwelling on Eichmond Hill, 
will be regarded by coming generations, if they ever hear 
of that absurd figment of the imagination, as conclusive 
evidence of the narrow-minded prejudice of the educated 
middle-class in the twentieth century. 



188 THE ECONOMICS OF SOCIALISM 

Eent is due to historic development and social conven- 
tion. By this social convention private ownership of land 
is recognised by the community and upheld by law; thus 
entitling landlords, like their friends and enemies the cap- 
italists, to obtain a large share of the industrial product 
without doing any productive work. 



CHAPTER VII 

INTEREST 

Interest on money has a long history, anterior even to 
rent. Interest on capital in its money form is, indeed, 
much older than rent, and of course very much older than 
profit in its modern shape. It arose out of the money 
capital of the merchants or traders of antiquity which es- 
tablished itself in their hands as a sort of social syphon, 
specially adapted to suck wealth out of both sides, in the 
exchange and commercial operations carried on by them, 
as indispensable go-betweens to the small producers of those 
times. 

Standing between the buyers and the sellers of antiquity, 
the owners of money, who possessed the universal equiva^ 
lent, traded between the two; and had the opportunity, of 
which they took the fullest advantage, of getting the better 
of both. Hence the money capital of this merchant class 
steadily increased by taking toll of the produce which 
passed through their hands. 

The money power thus obtained was extended, by proc- 
ess of accumulation and hoarding. By degrees, these op- 
ulent traders found themselves in possession of sufficient 
means to continue this commercial business on the increas- 
ing scale which the growth of trade demanded ; and at the 
same time they were able to lend a portion of their money 
at interest to those who needed and could pay for it. 
Money-owning here appears historically in opposition to, 
and in antagonism with, landowning. 

189 



190 THE ECONOMICS OF SOCIALISM 

'The economic influence of usury on ancient society was 
very great. It acted from the first as a revolutionary and 
disruptive force. Not only did usury help to uproot and 
destroy the small free producers, but it performed a similar 
service, though not so completely, for the great slave- 
worked estates, and converted patriarchal or family slavery, 
under which the slaves had some chance of being fairly 
treated, into mere chattel slavery, under which the slaves 
were regarded as more or less intelligent human machines, 
provided for the supply of wealth to their masters. 

Usurers who advanced on estates, large or small, be- 
came, by the pressure they were able to exert, and the 
wholly anti-social relations they were able to establish, mas- 
ters of the economic forces of the time; and may be said 
to have filled, alike in regard to freemen and slaves, di- 
rectly and indirectly, the position of the successful sweat- 
ers of modern days. And they were regarded, both then 
and in the feudal period which followed, — in which, by 
the way, they played much the same economic role — as an 
altogether hateful class. 

For many centuries the exaction of interest for money 
lent was universally denounced as usury, and was fre- 
quently punished by the law. To lend money in order to 
beget more money was regarded as an unnatural means of 
engendering an unnatural offspring. Aristotle speaks of 
this method of acquiring riches as most reprehensible. 
Usury, according to him, means money born of money ; " so 
that of all means of money-making this is the most con- 
trary to nature." The philosophers and jurists of the 
Roman period took the same view. 

The Fathers of the Church followed on the same side, 
and passage after passage might be quoted from their 
writings, invoking all the wrath of heaven and all the tor- 



INTEREST 191 

ments of hell against the greedy, rapacious, usurers who 
were wicked enough to exact interest for what is nowa- 
days called "pecuniary accommodation." 

But the development of the economics of class society 
took no more account of the furious invectives of the men 
of God than it did of the milder censures of the pagan 
philosophers, or of the punishments inflicted upon indi- 
vidual usurers by the pagan law-givers. Economics pay 
no respect to the law or the prophets. Money-lenders be- 
came continually more numerous and more powerful, not- 
withstanding the intervention now and again by the State 
on behalf of the debtors ; and the only effect of the ban put 
upon usurers then and later was to raise the rate of interest 
demanded on money lent; by way of compensation for the 
greater risk run by the lender of losing not only his ad- 
vance itself, by way of forfeiture, but certain, to him, very 
valuable portions of his person into the bargain. 

Money, of course, was lent under these circumstances in 
its corporeal shape as money, as the universal metallic 
equivalent. With money the borrower could buy anything. 
Interest was exacted, under such circumstances, not as a 
share of the profit to be realised by the borrower, nor as a 
reward of abstinence in the lender for not having spent the 
money at Corinth or Pompeii before he lent it ; but simply 
because the social necessities of the borrower rendered it 
imperative, or highly desirable, that he should have the 
temporary use of the money, and the lender was able to 
calculate upon this. 

There was no question here of industrious, thrifty Char- 
icles lending his plane, or his plough, to the less industri- 
ous, less thrifty, or more unlucky Gallus, so that Gallus 
might smooth more planks or raise a larger crop of wheat ; 
and that then Charicles should participate in the gain due 



192 THE ECONOMICS OF SOCIALISM 

to the superior appliance which in the way of business he 
had lent to Gallus. This pretty fairy-tale, which the late 
M. Bastiat, Mr. Henry George, and others have amused 
themselves with, has as little existence in fact as the sud- 
den appearance of competitive rent among the original 
settlers and their kin. 

The loan of money from one man to another at inter- 
est was, until a comparatively recent period, a pure trading 
upon the social necessities of the borrower; in the same 
way that the Indian money-lender, soucar, shroff, bunia, or 
whatever name he may be called by, trades upon the social 
necessities of the ryot to-day, when the latter borrows 
money at sixty per cent, to spend on the marriage of his 
daughter; or the familiar English pawnbroker trades upon 
the necessities of the locked-out worker, when he lends the 
workless Englishman money at twenty or thirty per cent, 
on his tools or his furniture. This is why usury was so 
vehemently denounced throughout the period when capital- 
ism was in the germ. Enough of the old communal in- 
stinct was still left to feel outraged at this money-monger- 
ing. 

But the borrowing and lending of money at interest 
nevertheless attained vast proportions, though not borrow- 
ing for the purpose of investment or speculation. Great 
landowners, successful generals, ambitious politicians bor- 
rowed in order to be able to display greater magnificence 
on special occasions, to give larger donations to the popu- 
lace, or to buy wider political influence. The smaller men, 
the small free farmers, colonists, and the like, borrowed for 
social purposes of more or less importance to them. Simi- 
larly, the great noble of the feudal time had recourse to 
the money-lenders in order to go well-equipped to the Cm- 



INTEEEST 193 

sades, or to make a fine show at a great tournament, and 
the smaller men followed in his wake. 

Yet all the time usury was regarded as a crime, and law 
after law was enacted against the hated money-lenders, 
even by merchants who were in effect taking interest on 
money themselves. Money-lenders, Jew and Christian 
alike, were always fair game. Yet they still prospered, 
and throve in spite of the law, and their sacrifice of ears, 
noses, teeth, eyes, and even life itself. In England, Act. 
13 Elizabeth, cap. 8 of 1570, confirming the Act of Edward 
VI, Sec. 5, proclaims, in view of the fact that " all usury 
being forbidden by the law of God is sin and detestable," 
any loans on which less than ten per cent, is asked render 
the principal liable to forfeiture; and loans bearirlg a 
higher rate of interest not only expose the lender to the 
loss of his capital, but bring him within the grip of the 
law for severe punishment as well. This Act was only 
repealed in 1854 ! Needless to say that payment of interest 
had been fully recognised in England and enforced by law 
long before that date. 

The change in the view of interest taken in modern 
times as compared with ancient is, of course, due to the 
fact that interest in the twentieth century constitutes as 
a rule only a participation in profit, or in surplus value, 
already realised. Or in the case of state or municipal 
loans the interest paid is in fulfilment of an obligation 
supposed to have been entered into with the full consent 
of the whole community. No moral stigma whatever at 
present attaches to the making of profit, nor, consequently, 
to the taking of a share in such profit when made. The 
alteration of conditions came about with the rise of the 
present complete system of capitalist production for profit. 



194 THE ECONOMICS OF SOCIALISM 

Those who found themselves in possession of money-capital 
acquired by commerce, piracy, or slavery, could now lend it 
not merely to feudal magnates, or needy freeholders, but 
to their brother capitalists, in the sphere of active produc- 
tion, who wished to make a profit out of the labours of 
others by employing them as wage-earners to work a new 
machine or the like. 

The capitalist who directly employs his hands and sees 
his way to realise a satisfactory amount of surplus-value, 
representing, say, a profit of 20 per cent, reckoned on the 
total amount of capital embarked, borrows the whole or a 
portion of what he requires from the capitalist who owns 
the money, and agrees to pay him a part of this surplus- 
value — say, 5 per cent. — on his advance in the shape of 
interest. The capitalist who makes this loan has, as a 
rule, no control over the operations of the borrower — at 
any rate, so long as things go right and his interest is paid, 
or when his principal is paid in due course. He, like the 
landlord, or rent-receiver, is simply a sleeping partner in 
the business. 

This is equally true whether the money borrowed, for 
which interest is paid, is used as industrial capital, or as 
trading capital. In both cases the lender receives his 
interest, reckoned for this purpose at 5 per cent., in return 
for parting with his temporary control over the universal 
social equivalent for exchange-value. It matters not at 
all how the lender came by the money he advances; 
whether he inherited it, or stole it, or, as assumed above, 
made it in trade. He obtains interest* for it from the 
borrower as a portion of the profit realised, not as a reward 
for his abstinence, — for thrift has had nothing to say in 
the whole transaction — but as a return for the temporary 
loan of a social force, namely, money capital, which it is 



INTEREST 195 

more convenient for him to part with, under restrictions, 
to another, than to use himself. 

Interest, then, is due to the private ownership of money, 
as rent is due to the private ownership of land, and interest 
on money under capitalism takes, for the most part, the 
shape of a participation in profit. But the amount of 
private capital which seeks an outlet, in the direction of 
such a participation in profit under capitalism as is repre- 
sented by the payment of interest for an advance, soon far 
surpasses the total amount of coined money in any coun- 
try. With the expansion of banking and credit, the growth 
of bills, drafts, cheques, notes, bonds, shares, and so forth, 
this sort of loanable capital becomes more and more obvi- 
ously nothing more nor less than a series of orders on other 
men's labour estimated in imaginary amounts of gold. 

As this loanable capital, real or nominal, increases, and 
security for the payment of the interest and repayment of 
the principal is enhanced with the stability of any given 
capitalist society, the rate of interest steadily falls. From, 
say, 10 per cent, to start with, it comes down to 4. The 
amount of loanable capital on offer grows, that is to say, 
and its security increases, in a greater ratio than the 
demand for it at the current rate for profit-making pur- 
poses develops. 

How purely this is a matter of social convention will be 
apparent from the following illustration. A rich man 
subscribes capital to the debentures of a railway. His 
advance, which, with other loans, enables labour to be 
turned into this instead of some other channel, bears the 
fixed rate of interest of 4 per cent. If now he cuts off the 
coupons from his debentures each year, and allows his 
banker to collect tbem for him in the shape of cheques 
from the railway company, he will in five-and-twenty 



196 THE ECONOMICS OF SOCIALISM 

years, by simply leaving the account at his bank without 
drawing upon it, have in his possession, as the result of 
receiving these bits of paper, the whole amount of his 
original advance, and, without toil or trouble on his part, 
will be able to command twice as much labour as he could 
five-and-twenty years before. If lent at compound interest 
all the time very much more. 

More than this, his original advance will not only be as 
secure as it was to begin with, but the railway itself, 
assuming the social convention under which it was con- 
structed to continue in force, is a far more valuable prop- 
erty than it was, although, owing to the progress of mechan- 
ical invention, it could probably be constructed now for 
half the cost. In fact, monopoly and the fall in the 
average rate of interest on first-class security, owing to 
other capitalists having been as abstinent and as saving 
as himself, has greatly enhanced the capital value of his de- 
bentures as an investment. 

But it by no means follows that a permanent decrease 
in the current rate of interest means that the interest- 
receivers as a class take a less proportion of the total 
product of the community than they did at the higher 
rate, in return for having done themselves the honour to 
be born capitalists, or for having arrived at the sleeping 
capitalist stage of existence, as " architects of their own 
fortunes." A very elementary knowledge of arithmetic 
suffices to teach us that even two per cent, per annum on a 
million sterling is equivalent to twice ten per cent, on one 
hundred thousand pounds. If, therefore, the total amount 
of loanable capital aggregated together in the hands of the 
possessing classes and lent out at interest increased in a 
far greater ratio than the rate of interest itself has fallen, 
as unquestionably was the case in Great Britain before 



INTEKEST 197 

the war, then, clearly, the relative expropriation of the 
results of social industry by the interest-receivers has in- 
creased, notwithstanding the fall in the rate of interest on 
first-class security. 

Consequently, the argument which is sometimes used 
that the reduction in the average rate of interest consti- 
tutes of itself an advance towards an improved system of 
production and distribution cannot be maintained. The 
active capitalist may be able to borrow the whole or a por- 
tion of his necessary capital from the sleeping partner, the 
lender, at a lower rate than before; but in order to carry 
out his business operations, on the more extended scale 
required by modern industry, he will have to borrow larger 
amounts than before, and the total surplus value extracted 
from the toil of the workers is greater than ever. 

A low bank-rate of discount, such as England used to 
enjoy, carrying with it a low rate of interest on deposits 
in the various banks, only signifies that confidence having 
been shaken by great failures, and the initiation of large 
enterprises, which has passed from the adventurous mer- 
cantile class to the timid financial class, having been 
checked, the amount of loanable capital to deal with first- 
rate mercantile bills drawn against produce, or to lend on 
high-class securities already on the market, outgrew the 
requirements of this particular market. The coupon- 
cutters and interest-accumulators, in fact, by their " absti- 
nence " piled up deposits to their credit to such an enor- 
mous extent that they reduced their own rate of interest 
by the over-supply to the demand. These deposits are, let 
it be said again, purely matters of social convention, repre- 
senting paper orders on other men's labour; from the 
unpaid portion of which labour, interest, like rent and 
profit, is derived. 



198 THE ECONOMICS OF SOCIALISM 

Professor Bohm-Bawerk and writers of his school have 
been at great pains to discover some basis for interest other 
than a participation in the surplus value squeezed out of 
the labourers, owing to a class monopoly of money-capital 
and credit. Similar efforts, as already observed, have been 
made by other economists, most bitterly opposed to the 
exaction of rent by landlords, to place interest and profit 
on an ethical footing as between man and man. But our 
modern social conditions admit of no weak moralising of 
this sort on the assumption of mutual service rendered. 

From the ethical point of view, with which here we have 
nothing to do, wage-slavery is to the full as immoral as 
slavery. From the point of view of the active capitalist 
and direct employer of labour — the " captain of indus- 
try," the well-paid villicus of our day — the sleeping capi- 
talist partner who lends money at interest, no doubt 
renders him a service by enabling him to extend his opera- 
tions, and obtain larger profits by the use of such borrowed, 
capital. But from the point of view of the actual pro- 
ducers neither the one nor the other renders any service 
whatever. They both merely take a portion of the sur- 
plus-value, with which the wage-earners are compelled by 
necessity to furnish them, in the shape of unpaid labour 
embodied in commodities; standing in this respect prac- 
tically on the same footing as landlords, bankers, merchants, 
lawyers, brokers, clergymen, company-promoters and other 
encumbrancers. 

'The truth about interest and its source in modern capi- 
talist society is disguised from superficial observers, because 
it appears, in ordinary business affairs, as a transaction 
between two different sets of capitalists. Banks and loan- 
agencies of various kinds lend their deposits, consisting of 
capital accumulated out of the surplus-value appropriated 



INTEKEST 199 

from unpaid labour, in the various spheres of industry, to 
persons possessed of good security who are engaged in 
different capitalist businesses. Without entering upon the 
diverse forms which these advances take, it is quite clear 
that interest on money of itself creates no value. Conse- 
quently, interest in every case is a participation in the 
social surplus-value created by labour, and can have no 
other origin. The attribution of value-creation to the 
" thrift " or " abstinence " of sleeping-partner capitalists 
is an absurdity so ludicrous that discussion of it would be 
mere waste of space. 



CHAPTER VIII 

WAGES 

Wages have been paid to labourers throughout a very 
long period in the history of industry, and the variations 
in their relation to the cost of subsistence have been 
strongly marked. The rates paid also to skilled and un- 
skilled labourers and to town and country labourers have 
almost invariably been very different. But never before 
the complete capitalist system was organised have the vast 
majority of the workers (as well as the attendants upon the 
parasitical classes) been compelled to depend upon wages 
earned by the sale of their labour-power for their sole 
source of subsistence, as is the case with the propertyless 
class in Great Britain to-day. In other civilised countries, 
as already said, a very large proportion of the population 
is still settled upon the land and, terribly hard as is the 
work of the farmers, peasants, small holders and share-of- 
produce cultivators, they are not directly dependent upon 
the capitalist for their food, housing, clothing and small 
luxuries. In most cases, much of what they need they 
produce themselves. It is an arduous and exhausting life, 
but, so long as those who live it can keep out of debt, an 
independent one. 

Nothing of the kind, on any appreciable scale, remains 
in Great Britain. The non-possessing class in this island 
is essentially a proletarian class. It possesses no property. 
The agricultural labourers are as much the " hands " of 
the farmers, as the factory operatives are the " hands " of 

200 



WAGES 201 

the industrial capitalists. Moreover, until lately, the bulk 
of these agricultural labourers were so completely unorgan- 
ised, and so miserably paid and housed, that they were 
even more dependent upon the capitalist farmers, over the 
greater part of the country, than the industrial workers 
and artisans were upon the town capitalists. This is the 
reason, apart from the earlier growth of the capitalist sys- 
tem of production in England, why this island is still used 
as the classical example of the entire field of exploitation 
of labour and manufacture for profit. 

Now, as already frequently stated, people who possess 
no property, and are destitute of the prospect of inheriting 
or obtaining any property, have only one saleable com- 
modity at their disposal, by parting with which they can 
acquire the means of subsistence and shelter for themselves 
and their families. This commodity is labour-power: the 
power of labour comprised within their own bodies: the 
power of labour, the power which alone when put into 
operation for producing useful articles can embody value 
in commodities by application to raw materials, &c. This 
power at the disposal of propertyless human beings the 
active capitalists, whose existence as capitalists depends 
upon the continuous production of such commodities, is 
ready to buy at a price. That price consists of wages paid 
for the labour-power whose functioning is advanced to the 
capitalists for a specific purpose, till the expiration of a 
week, a fortnight or a month. 

This labour-power so advanced on credit to the capi- 
talists becomes their property for the time being as a living 
commodity, like other commodities bought and used in the 
course of production. It is used by them to create, by its 
expenditure, articles of social use which can be sold at a 
profit: such profit being derived from the value over and 



202 THE ECONOMICS OF SOCIALISM 

above the wages paid for the advance of the labour-power 
which is embodied in the commodities produced under the 
capitalists' absolute control. 

Now what was the rate of wages paid to the workers of 
Great Britain prior to the war? It is, of course, impos- 
sible to average correctly rates of wages running from 12s. 
to 15s. a week to agricultural labourers in the Southern 
Counties up to the 36s. paid to members of the Amal- 
gamated Society of Engineers in London or the still higher 
wages paid to compositors, or plumbers. The standard of 
life, the amount of rent paid for housing and the general 
conditions differ too widely for accurate comparison. But 
it is certain that, whether the vendor of labour-power be a 
so-called "unskilled" agricultural labourer, or a highly- 
skilled artisan, "it cannot be maintained that at any rate 
the food, clothing, etc., necessary to keep the labourer in 
the most efficient condition will give us a minimum below 
which the self-interest of employers . . . will not suffer 
wages to fall." (Henry Sidgwick.) 

This means that, along the whole line, employers pur- 
chase labour-power at the lowest possible point decreed by 
competition, regardless of whether a sufficient subsistence 
is or is not afforded to the labourer himself. Hunger in- 
stead of the whip is also the impelling motive in such 
competition. The wage-earner is forced, in order merely 
to live up to the standard of life in his particular trade, 
to accept the average or Trade Union rate of wages as 
established by custom and agreement. He is thus virtu • 
ally the wage-slave of the employing class, whether he be 
paid a high or low scale of wages. Whether, also, he be 
a low-grade or a high-grade wage-earner, unemployment for 
three months at the very outside will see him stripped of 
his small savings, denuded of his little furniture and his 



WAGES 203 

wife's trinkets, and swept down into absolute penury. 
This anxiety concerning unemployment and destitution, 
from which the superior grade of chattel-slave did not 
suffer, weighs constantly upon the modern wage-earner; 
while strikes to resist reduction of wages or unfair treat- 
ment of any sort from the employer throw him upon his 
scant Trade Union funds and often end in failure, or little 
short of it, after weeks of privation. 

Thus the economic and social position of even the high- 
est-paid wage-earner, who at times may earn exceptional 
remuneration, remains almost as insecure and his surround- 
ings are not very far from being as depressing, as those of 
the workers of a much lower grade. Only by stinting 
himself and his family and accumulating savings by par- 
simonious and physically injurious thrift can he hope to 
rise out of his class into the employing class above. This 
possibility becomes more and more remote every year, as 
the necessary amount of capital to start in business in- 
creases ; nor does the ownership of shares in the mills where 
he is employed tell much in the direction of greater inde- 
pendence. He is drawn in some measure into the whirl- 
pool of capitalist industrialism with little advantage to 
himself. The small profits he obtains are, in any case, 
drawn from the surplus-value created out of his own unpaid 
labour. Individually, here and there, he may be tempo- 
rarily and apparently a gainer. But, in the long run, born 
a wage-earner, a wage-earner he will remain to the end of 
his working life, so long as the system continues. 

Furthermore, the very highly-paid wage-earner, even if, 
in good times, in the United States, he drives to his daily 
work in a Ford motor-car, is economically speaking, just as 
much a wage-slave as the carefully-nourished, educated 
slave of Crassus remained a chattel-slave, though his lot 



204 THE ECONOMICS OF SOCIALISM 

was far superior to that of the slaves of the same owner 
toiling on the land. In short, what Eobert Owen, himself 
an employer of labour on a large scale, said of the capi- 
talist, wage-earning, profit-making system, at the end of 
the eighteenth century, is just as true at the beginning of 
the twentieth century: "Under capitalism a man [or a 
woman] must be either a slave-driver, or a slave/' 

Now, however, disregarding the various grades of remun- 
eration in the wage-earning class, conditioned by skill, 
effective Trade Union combinations, and apprenticeship, 
&c, what was the amount of surplus-value, that is to say 
unpaid labour, extracted from the producers and essentially 
necessary social distributors, prior to the great war? To 
arrive at this amount and its ratio to the total of yearly 
national income — the word " income " by the way is quite 
incorrect as applied to the wage-earning class — I make 
use of the statistics given by Chiozza-Money in his useful 
little book, "The Nation's Wealth." The total national 
revenue is put there at £1,844,000,000. Of this sum, 
the productive wage-earners are credited with receiving 
£703,000,000. But that figure is excessive. To begin 
with, it includes the remuneration of domestic servants, 
obviously, in the main, a purely parasitical class. There 
were some 2,000,000 such servants up to 1914. Taken as 
a whole, their remuneration would be understated at 
£100,000,000 a year. This leaves to the useful wage- 
earners, roughly, only £600,000,000. But out o>f this 
£600,000,000, again, it is reasonable to deduct from the 
net wages the rent paid back to the possessing and employ- 
ing class for the wretched housing accommodations pro- 
vided for the wage-earners as a whole. How much would 
that be ? Not far short of another £100,000,000, reckoning 
that the workers of 'Great Britain pay on the average one- 



WAGES 205 

sixth of their weekly wages for housing. But, in order to 
be well within the mark, let only £60,000,000 be deducted 
for rent paid to the property-owners out of the remunera- 
tion accorded to the wage-earners. We have then 
£703,000,000, less £100,000,000, less again £60,000,000, or 
£543,000,000 in all, as the actual payment, calculated on 
this basis, made annually to the productive and necessary 
distributive wage-earners of Great Britain up to 1914. I 
consider this sum to be still too large for the facts, and no 
allowance is made for the heavy pressure and consequent 
reduction due to bad trade. 

But taking £543,000,000 as the total amount of wages 
paid to the actual necessary workers of the community out 
of the grand total of £1,844,000,000, and it appears that 
the non-producing class and their parasites (including 
petty distributors who are economically useless) the pro- 
portion of paid to unpaid labour in Great Britain is repre- 
sented by the ratio of £543,000,000 to £1,844,000,000, or, 
in round figures, 1 to 3%. This means that every useful 
worker in the country does one hour's work for himself 
and three and a half hours' work for non-producers: the 
ratio of unpaid to paid labour being 7 to 2. Make what 
allowance we please for due remuneration to doctors, sur- 
geons, nurses, teachers, " organisers of labour," architects, 
necessary small distributors and the like, and we have here 
a social and economic system erected on a most precarious 
foundation. 

There is also a section of the wage-earning problem 
which, though well known to exist, has never received due 
consideration either from bourgeois political economists or 
from our capitalist society as a whole: nor certainly has 
any organised and continuous attempt been made to remedy 
the evils resulting from this admitted fact by society as a 



206 THE ECONOMICS OF SOCIALISM 

whole. Labour-power is sold at its cost of subsistence and 
reproduction to the capitalist. But a large proportion of 
it is habitually sold by the workers in capitalist countries 
at wages which preclude its owners and vendors from 
obtaining, by the purchasing value of their wages, a 
standard of life sufficient to enable them and their families 
to maintain themselves in reasonable health and comfort. 
In London, in particular, it was established by the investi- 
gations of the Social-Democratic Federation, so long ago 
as 1884-1887, that more than twenty-five per cent, of the 
working class lived on a rate of wages which rendered the 
continuance of such miserable poverty inevitable. The 
accuracy of the statistics published by the Social-Demo- 
crats of a number of average streets in the poorer districts 
of the metropolis was challenged and their arugments based 
upon them were widely denounced by the capitalist press 
as gross exaggeration. A wealthy shipowner took up the 
subject, in order to prove that the facts were not as stated. 

As the originator of the inquiry by the Social-Democratic 
Federation, I watched for the result of this further more 
elaborate and expensive work with great interest. The sta- 
tistics obtained proved conclusively that more than thirty 
per cent., not five-and-twenty per cent., were perpetually 
living under the degrading social conditions of under- 
payment, overcrowding and insufficient nutrition. And so 
they are at the time of this writing. 

The capitalist class of London and Great Britain with 
the»Government of the day has paid no more attention to 
the facts when they were conclusively established beyond 
possibility of refutation by one of their own order than 
they did when they were first made public by the Social- 
Democratic Federation. Moreover, so long as our capi- 
talist, competitive, wage-earning production for profit goes 



WAGES 207 

on^eo long will this state of things endure, not only in 
London but in all the largest industrial and commercial 
centres of Great Britain. Averages are proverbially illu- 
sory as evidences of well-being in social affairs; but it 
would appear to be a crushing condemnation of the entire 
wage-paying system that so large a percentage of useful 
workers should, as acknowledged, be living under hopeless 
conditions of this sort. Obviously, so low a standard of 
life, for so large a proportion of the industrial population, 
tends to keep down the rate of remuneration for the rest. 

Since August, 1914, the economic conditions in Great 
Britain and all over the world have been quite abnormal. 
The great and inevitable decrease of production during the 
war and the large demand for commodities which ensued 
on the peace, aggravated by the over-issue of paper money 
and excessive expenditure and waste, led to a very heavy 
rise of prices in every department. This was necessarily 
followed by a demand for higher wages and still higher 
wages throughout the various industries, many of the 
advances being preceded by strikes or threats of strikes 
unless the claims of the workers were conceded. It is 
doubtful, however, whether the additional wages obtained 
represented on the average more than a nominal gain. 
Such real advantages as fell to the lot of the workers at 
home occurred between 1914 and the beginning of 1919, 
due to circumstances whose consideration lies outside the 
scope of this volume. The temporary home demand for 
goods of all sorts in the two years succeeding the armistice 
and the good trade which followed soon fell off. Great 
Britain, in consequence of the policy of systematic neglect, 
favoured by the Government, is now going back to the 
conditions which prevailed before the period of hostilities 
when, in spite of all the laudations of capitalist laissez- 



208 THE ECONOMICS OF SOCIALISM 

faire as beneficial to the people, the bulk of the wage- 
earning class was living from hand to mouth on a low 
standard of subsistence. 

But the influence of the war upon the class struggle has 
been very considerable in all countries, and, as might be 
expected, especially in our own, the most advanced country. 
Trade Unionism has gained enormously in strength. Com- 
bined Labour was never nearly so powerful in this island. 
The numbers of Trade Unionists have increased by leaps 
and bounds, no fewer than 6,500,000 disciplined workers 
being represented at the Congress at Portsmouth. More- 
over, the tendency is to coalesce the large separate Unions 
into closer and closer solidarity. It is within the power of 
a few of these combined forces to hold up the entire trade 
of the island on a mere question of wages, and the working- 
class leaders not only negotiate on equal terms with the 
Prime Minister and other members of the Cabinet but the 
hostile capitalist press reports the speeches on both sides 
almost verbatim. This in itself is an extraordinary 
change, brought about within a very short period. 

On the other hand, the growth of fighting organisations, 
rings and trusts on the side of the capitalists has been 
almost equally remarkable. In several trades something 
little short of complete monopolies have been created — 
national monopolies with international relations. In the 
building trade it is calculated that from 300 to 600 per 
cent, profit is realised by the different rings in the various 
departments of the industry, on the materials required, 
before the builders themselves and their workers begin to 
carry out any contract. No method yet devised has been 
able to cope with such excessive profiteering. 

As a consequence, even Trade Unionists are beginning to 
learn that mere efforts for higher wages cannot, even if 



WAGES 209 

successful, assure permanent well-being for the workers of 
the community. This has led to stronger and stronger 
claims for nationalisation and socialisation of mines, rail- 
ways, shipping, factories, the land, &c. Such claims must 
end sooner or later in a clear-cut programme for the aboli- 
tion of the wages system altogether and the substitution 
of complete social cooperation for anarchical competition. 
The increasing disposition of the great Cooperative Socie- 
ties, who supply upwards of a fourth of the consumers, to 
make common cause with the Working Class Organisations, 
politically and economically, must help or nd facilitate 
this transformation — the greatest revolution of all time. 



CHAPTER IX 

INDUSTRIAL CRISES 

In a previous chapter I dealt with the circulation of 
commodities, and showed how necessary it is that the con- 
tinuity of the stream should not be interrupted. Any 
interruption, from whatever cause, means a temporary 
stoppage round the whole circle, and a consequent break- 
down in all, or nearly all, departments of trade. It is 
common among those who have not fully considered the 
conditions of modern capitalist production to contend that 
there is practically no difference between the disturbance 
of business which arises in modern times, and that which 
can be traced in ancient history, or in countries where the 
older forms of production remain to this day. 

Thus a famine, a drought, a war, a pestilence, have fre- 
quently occasioned, not merely a temporary but a wide- 
spread suspension of business relations, inflicting the 
greatest hardship on large populations. This can occur 
as easily under the ancient primitive communism as under 
chattel slavery or feudalism. In such circumstances, any 
great natural upset of the existing society would bring 
about very serious distress. But this was due to the lack 
of the necessaries of life, or other requirements of the 
society of that time. That people should be going un- 
clothed or unfed, where but shortly before they had been 
in full employment at good pay, merely by reason of the 
over-abundance of the goods which they themselves had 
produced and circulated, this is a peculiarity of modern 

210 



INDUSTRIAL CEISES 211 

times, and a phenomenon wholly unknown before the 
establishment of the capitalist system. Under present 
conditions, it is positively the excess of wealth produced, 
over what economists call "the effective demand " for it, 
that results in those recurring crises which now come more 
frequently than ever before. 

The difficulty of harmonising the relations of produc- 
tion,, when once capitalism and production for profit be- 
came the rule rather than the exception, was soon per- 
ceived. Our early Poor Laws were to some extent an 
attempt to deal with this difficulty. The famous Sir 
William Petty, from whom I have previously quoted, saw 
clearly that the problem of the unemployed of his day 
ought to have been dealt with by the collective agency of 
the whole community. As, for example : " Those who 
cannot find work (though able and willing to perform it), 
by reason of the unequal application of hands to lands, 
ought to be provided for by the magistrate and landlord 
till that can be done; for there needs be no beggars in 
countries where there are many acres of unimproved im- 
proveable land to every head as there are in England." 

Again, the equally famous John Bellers, writing a little 
later, found the same problem of deserving unemployed 
facing him, and he says : " By computation, there is not 
above two-thirds of the people or families of England that 
do raise all necessaries for themselves and the rest of the 
people by their labour ; and if the one-third, which are not 
labourers, did not spend more than the two-thirds which, 
are labourers, one-half of the people or families labouring 
could supply all the nation." And, therefore, it is " a 
certain demonstration of the illness of the method the 
people are employed in if they cannot live by it; nothing 
being more plain than that men in proper labour and em- 



212 THE ECONOMICS OF SOCIALISM 

ployment are capable of earning more than a living." 
" With many commodities the market is over-stocked 
(and what is the best dinner worth to a full stomach), which 
is the great unhappiness of many of our mechanics, that 
they make commodities when nobody wants them. And 
then they pine and starve whilst they are waiting for a cus- 
tomer that will give bread for their manufactures (or money 
to buy bread), whereas the same labour in husbandry they 
used in making them manufactures would have raised 
much more food than the money they got for their manu- 
factures will buy them," and partly from a more serious 
cause, for " as traders are useful in distributing, it is only 
the labour of the poor that increaseth the riches of the 
nation, and though there cannot be too many labourers in a 
nation if their employments are in due proportion, yet 
there may be too many traders in a country for the number 
of labourers, and then some must fail for the want of trade 
to support them, from whence they become sharping or 
distressed, not being used to work, and the nation the 
poorer by the loss of their labour. 

" Traders may grow rich while a nation grows poor 
through extravagancy; for when the dealers may get 
twenty thousand pounds by claret, the nation pays and 
spends one hundred thousand pounds for it, and nobody 
grows rich by drinking it, whatever the seller doth. Land 
and labour are the foundation of all riches, and the fewer 
idle hands we have the faster we increase in value; and 
spending less than we raise is a much greater certainty of 
growing rich than any computation that can be made 
from our exportation and importation." 

Thus early we see that the excess of commodities in one 
department might be the occasion of serious distress to the 
producers. This again would re-act upon those from whom 



INDUSTRIAL CRISES 213 

they themselves were accustomed to buy, raising great 
difficulties in the way of subsistence for many, by reason 
of that very original excess. It is sometimes argued that 
this is still true, and that although it is possible that there 
may be too much of one commodity produced, it is impos- 
sible that there should be a glut in every department of 
trade at the same time. Unfortunately, however, that is 
precisely what occurs, and has been exemplified in every 
great crisis that the last century suffered from. This was 
true even of the great home crisis that followed upon the 
peace of 1815. 

Everybody thought that peace would bring with it great 
prosperity, but it was found, to the astonishment of all, 
that so far from the cessation of war benefiting the working 
population, at the commencement it made things consid- 
erably worse than they had been. The reason for this was 
given clearly at the time by Robert Owen, who said that the 
crisis or stagnation in trade was due to the great encour- 
agement given to new mechanical inventions and chemical 
discoveries, which superseded manual labour in supplying 
the materials required for warlike purposes, and these, 
direct and indirect, were innumerable. " The war was the 
great and most extravagant customer of farmers, manufac- 
turers, and other producers of wealth, and many during 
this period became very wealthy. The expenditure of the 
last year of the war, of this country alone, was one hun- 
dred and thirty million pounds sterling, or an excess of 
eighty millions of pounds sterling over the peace expendi- 
ture. And on the day on which peace was signed, this 
great customer of the producers died, and prices fell as 
the demand diminished, until the prime cost of the articles 
required for war could not be obtained." " Barns and 
farmyards were full, warehouses loaded, and such was our 



214 THE ECONOMICS OF SOCIALISM 

artificial state of society that this very superabundance of 
wealth was the sole cause of the existing distress. Bum 
the stock in the farmyards and warehouses, and prosperity 
would immediately recommence in the same manner as if 
the war had continued. This want of demand at remu- 
nerating prices compelled the master producers to consider 
what they could do to diminish the amount of their produc- 
tions and the cost of producing, until these surplus stocks 
could be taken out of the market. To effect these results, 
every economy in producing was resorted to, and men 
being more expensive machines for producing than mechan- 
ical and chemical inventions and discoveries, so extensively 
brought into action during the war, the men were dis- 
charged, and the machines were made to supersede them — 
while the numbers of the unemployed were increased by the 
discharge of men from the army and navy. Hence the 
great distress for want of work among all classes whose 
labour was so much in demand while the war continued. 
This increase of mechanical and chemical power was con- 
tinually diminishing the demand for, and value of, manual 
labour, and would continue to do so, and would effect 
great changes throughout society." 

Taking away from these statements the disturbing ele- 
ment of war, Eobert Owen gives here a practical analysis 
of what modern industrial crises are. They arise from a 
superabundance of commodities having been produced rela- 
tively to the "effective demand," thus checking the circu- 
lation which has been insisted upon as essential. 

Fourier, who observed the first really great international 
crisis of 1825, noted that this excessive accumulation of 
commodities was the main feature of the disturbance, and 
from that time to this, on each successive occasion, the 
same state of things can be noticed. 



INDUSTRIAL CRISES 215 

Before giving a short summary of these international 
crises, of which there were eight or nine in the last cen- 
tury — coming at intervals constantly decreasing, and their 
effects lasting longer when they came — it may be well to 
give the full theory of such crises, under a system of free, 
competitive capitalist production, from the point of view 
of scientific economy. 

Our present society moves and has its being in a whole 
series of antagonisms. As already insisted upon more than 
once, the fundamental antagonism, so to say, is that be- 
tween the social form of the method of producing wealth 
and the individual form of its appropriation and exchange, 
which still continues. The fundamental antagonism is fol- 
lowed and accompanied by the antagonism between the 
organisation which exists in each individual factory, farm, 
or workshop, and the complete anarchy which prevails in 
the exchange. The organisation during the process of 
production is pushed to the highest possible point ; so much 
so that any one set of hands coming late to a factory renders 
it impossible for the whole great engine of industry to act 
properly. And employers take very good care to see that 
discipline in this respect is completely maintained. But 
when we come to deal with the products that are created by 
the industry of this socially organised whole, we discover 
that anything like organisation is, as a rule, unknown. 

" Go as you please," is the one motto for all under fully- 
developed capitalism, and the object of each individual 
employer is to obtain the greatest possible outlet and the 
quickest sale for his own goods, quite regardless of the 
interests of anybody but himself. 

A third antagonism is that between manual and machine 
labour, already referred to in the quotation from Robert 
Owen. When the labourers, owing to an improvement in 



216 THE ECONOMICS OF SOCIALISM 

business, are able to demand and get better rates of wages 
than they were paid before, new machines, which previously 
had not been introduced, are brought into operation, and 
thus the ingenuity and work of one portion of the working 
population are used to keep another portion of the same 
population in economic subjection. 

Again, there is the antagonism previously commented 
upon, between money and commodities. Money must be 
obtained by the sale of commodities. With his commodi- 
ties alone, the capitalist cannot buy fresh raw materials, 
cannot meet his bills, cannot pay his rent. Therefore the 
moment any hitch occurs in disposing of his goods, this 
antagonism, which in ordinary times escapes notice, starts 
up and stares the producer in the face. 

Out of these economic antagonisms there arises neces- 
sarily a great class antagonism between the employers and 
the wage-slaves, between the bourgeoisie and the prole- 
tariat. To the employers, under our present system, the 
existence of an unemployed section of the workers is a 
necessity. The ups and downs of trade require that there 
should be constantly on the market a set of workless men 
and women, ready to compete for employment, and anxious 
in good times to accept wages below what otherwise might 
be obtained by those in employment, and eager in bad 
times to obtain work on almost any terms whatever. 

Another antagonism appears between the labour of men 
and women, so that a man's foes, economically speaking, 
become literally they of his own household ; children being 
employed where it is at all possible, in order still further to 
lessen the necessity of employing able-bodied men, and 
consequently bringing in a whole family to earn the amount 
of wages which, but for this domestic competition, the 
man, or even the woman, would probably earn alone. 



INDUSTRIAL CRISES 217 

The economic antagonisms here recited are the real 
causes of the successive industrial crises we are discussing. 

Manufacturers do not know, as a rule, what their neigh- 
bours are doing. For instance, news reaches a house from 
its correspondent in India, Australia, or China, that the 
goods previously encumbering that particular market have 
at last found a sale; that there has been a good harvest, a 
fine silk crop, an admirable season for wool or cattle, a 
splendid return from jute, or opium, or indigo; in fact, 
that, in the judgment of the writer, business in that part 
of the world will not only be better for the moment, but that 
a heavier demand will certainly follow. Meanwhile, he 
recommends that large quantities of such and such goods 
should be shipped at once, so that the rival exporters may 
not step in first after the troubling of the pool of pros- 
perity. Similar advices reach other great firms from their 
correspondents about the same time. Then the wholesale 
exporters give orders in hot haste; the manufacturers, who 
have probably heard of the improvement themselves, take 
heart, and cautiously raise prices. They feel that dulness 
and short time and depression have passed away. There 
is lightness in the commercial air, and exhilaration per- 
vades the whole atmosphere of business operations. Mills 
or factories begin to set to work in earnest to fulfil the 
orders which pour in from all quarters. More " hands " 
are needed to do the work. The " over-population " which 
Malthusians had been denouncing is absorbed in a twin- 
kling — to enable the manufacturers to take advantage of 
the "good times." 

The good news spreads, and with it the change of " tone." 

Those manufacturers who are first in the field order new 
and improved machinery, which, be it said in passing, 
increases the whole available supply of labour, and tends, 



218 THE ECONOMICS OF SOCIALISM 

besides, to keep wages from rising excessively. This, for 
the time being, gives more work to the machinists and 
iron-masters. Their prosperity reacts in turn upon the 
miners and colliers. Prices rise all along the line; the 
people are in full employment at good pay, for they have 
soon demanded a rise in wages. In short, the manufac- 
turers are in haste to get rich, the railways get full 
freights, the growers of raw material find that they can, at 
ruling rates, profitably grow more of the special staple in 
which they are interested. There is what, in American 
parlance, might be called a universal "boom." It seems 
impossible that a collapse can ever come again, for are not 
all interested in maintaining this general interchange of 
products? The working classes, in particular, hope that 
at last permanent employment at good wages is assured to 
them; pauperism falls off, and the reports in the columns 
of the daily newspapers from the great industrial centres 
are most satisfactory. The very whirl of business prevents 
men from seeing clearly what is going on around them. 

For at this very moment the highest point has been 
reached. Those same correspondents, who but now were so 
jubilant, send home doleful tidings to the effect that goods 
are not moving off so fast as they were, and counsel pru- 
dence as to further shipments. In the home market also, 
the rise in wages, the higher rate of interest, the increase 
of speculation in all sorts of hopeless enterprises, or invest- 
ments in foreign bonds, combine to produce a check at the 
same time. It is found that a portion of the demand has 
been due to speculation from the outset, or to the pur- 
chase of our own goods with our loaned capital. Further- 
more, the rise of wages has driven manufacturers to try to 
get the better of their neighbours by introducing improved 



INDUSTRIAL CRISES 219 

machinery, and thus to produce more at a lower price with 
fewer hands. 

At the very time, therefore, when all looks most 
hopeful, when business is most prosperous, and em- 
ployment is most brisk — just at that instant the highest 
point has been reached in the progress of the industrial 
cycle, and ere long the downward movement commences. 
Suddenly, then, there is a great difficulty found in dis- 
posing of goods at a profit. The home and foreign markets 
are alike glutted. Even the cheaper raw material and 
improved machinery will not suffice to put matters on a 
better footing. Rather, those manufacturers who have 
such advantages intensify the crisis by pouring yet more 
goods at a lower price on an already over-burdened market. 
Hence short time becomes the rule: men are discharged 
wholesale from all departments of industry. There are 
plenty of people wanting clothes, food, house-room ; but in 
order to give them employment, and thus to enable them 
to obtain these necessaries, the capitalist class must be able 
to employ them at a profit, and such profit the very glut 
of goods in the market prevents. Hence comes the renewal 
of over-population on an enormous and even dangerous 
scale; whole districts are reduced to the very lowest level; 
it seems as if such misery could not longer endure. 

The depression spreads to every department as pros- 
perity affected every interest. Whence the first check comes 
matters little, sooner or later all are more or less injured, 
and we are in the midst of one of those ten-year crises, 
which, since the year 1825, have had world-wide effect. 
Such industrial crises, which are sometimes connected with 
financial upsets, but which may not always bring about the 
same results, have occurred every ten years for the last 



220 THE ECONOMICS OF SOCIALISM 

half-century. But the recurring periods have been short- 
ened, and the crisis in each particular trade may not be 
absolutely contemporaneous with that in others. The 
destruction they involve to men and material is incon- 
ceivable. 

When the pressure has lasted long enough for the over- 
production, as it is called, to work off, then the renewed 
demand begins, and the wheel works round once more. 
Again the workers who have been forced into the work- 
house are out on the " tramp " ; again the unfortunate 
hands who have " clemmed " in silence and sadness, hoping 
for better times, are taken back to labour for their employ- 
er's advantage and profit, only to be thrust down into deeper 
despair at the next stagnation, which is as sure to recur as 
are the seasons. Thus, in addition to all the uncertainty 
of new machines and inventions, which may interfere with 
his scanty wages at any moment; over and above all the 
evils a workman has to suffer from the revolutionary basis 
of modern production so opposed to the conservative — the 
too conservative — methods of old times; on the top of 
such never-ceasing chances and changes in the conditions 
of his daily labour, he is certain, once in every ten years at 
least, to suffer from a congestion in the labour market, 
owing to no fault of his own, which may throw him out of 
his former comparative comfort into the lowest abyss of 
misery and despair. 

For the working-class have no control whatsoever over 
the disposal of the goods which they themselves produce. 
They are not consulted as to whether these steps should be 
taken or that course abandoned. Labour has no say, can- 
not compare notes. There is socialisation in the work- 
shop, in the factory, in the mine, on the farm ; and anarchy, 
absolute, unrestrained anarchy in the exchange. Yet this, 



INDUSTRIAL CEISES 221 

I say again, is the organisation of labour for which the 
labourers are asked to be thankful ; this is the skilful man- 
agement of production which the capitalist class and their 
hangers-on make a merit of. Wealth, wealth, ever more 
wealth here: uncertainty, depression, starvation, degrada- 
tion for the men, women and children whose labour alone 
gives value or produces goods. The sole object of the cap- 
italist class being to obtain surplus-value by extra and 
unpaid labour, the relative over-population produced by 
machines, and the alternating series of inflation and depres- 
sion are greatly to their advantage. They are able to make 
more profit in a shorter time. But these crises tend also 
to crush out the small factories, the small dealers, the 
small distributors, and the small handicraftsmen more 
than ever. 

Each period of this description culminates in a whole 
series of bankruptcies, which, as a rule, means that the 
trade is driven into the hands of larger and yet larger pro- 
ducers and distributors. Thus the uncertainty of exist- 
ence extends far even above the mere producer himself, 
and results in that feverish lust for gain which is one of 
the worst features in our modern society. All are in haste 
to get rich, partly because they hope to be clear of the 
possibility of being left in hopeless penury in their old age. 
The capitalist system renders essential the economy of the 
means of production in each separate establishment; but, 
on the other hand, this is effected by the most wholesale 
waste of the physical strength of the producers and tbeir 
means of production, not to speak of the innumerable 
parasites engendered by the luxury it develops. Capitalist 
production, to repeat, depends upon the men and women 
who work being deprived of the means of production and 
obliged to sell themselves on the market for what is little 



222 THE ECONOMICS OF SOCIALISM 

more than a bare subsistence wage. Bui, when once the 
system is established, its continuance is necessarily ensured 
upon an ever-growing scale, until the producers themselves 
combine to take control of the whole means of production 
in the collective interest. 

For the products of the producer continually escape 
from him into the hands of the class opposed to him. His 
power of labour is worked up, not only into merchandise, 
but into capital — into means of production which control 
him, into means of subsistence, which actually buy the 
worker himself body and soul. He is the slave of his own 
production, and is bought with his own necessaries of life, 
which he himself furnishes in the form of exchangeable 
commodities. All this is disguised from the workers 
themselves by the daily or weekly sale of their labour- 
force; and the fiction that they enter upon a free contract 
with their employers induces them to stint themselves per- 
manently by serving the machines of another and hostile 
class. Their consumption of daily necessaries forces them 
to come day after day upon the market in order to sell 
themselves afresh to their employers who keep them thus 
in economical servitude. The relation of capitalist and 
wage-slave is day by day perpetuated. 

"But higher wages," say some, "surely this would in 
some sort remedy the miserable position you describe. 
English labourers nowadays are at any rate free to com- 
bine, the voting power is increasing in their hands; cannot 
they master the situation in that way, and secure for them- 
selves some comfort and security ? " The conditions need 
stronger measures, valuable as combination is for every 
purpose. For the relative over-population which occasions 
such endless misery in times of depression, and is ever 
close at hand in the flushest times of trade, is directly due 



INDUSTRIAL CRISES 223 

to the control by the capitalist class of the whole process 
of exchange, the increasing employment of machines owned 
by that class, and the growing proportion of constant to 
variable capital in every business. A man cannot keep his 
capital without increasing it ; accumulation on a larger and 
larger scale is forced upon the capitalist, and at the same 
time the increase of the wage-earning class to be employed 
as administering to luxury, or in producing more and more 
surplus-value, continues. The payment of wages itself 
presupposes a certain amount of labour given for nothing, 
which, on the average of cases in England, is at least two- 
thirds of the day's work. Wages, in fact, as already 
stated, are but an order upon a fraction of the value of the 
wage-earner's production. 

Take the best explanation by a middle-class economist 
of the phenomena of inflation and depression which has 
just been considered. What says Mr. John Stuart Mill? 
This: 

" A manufacturer finding a slack demand for his com- 
modity forbears to employ labourers in increasing a stock 
which he finds it difficult to dispose of; or if he goes on 
until all his capital is locked up in unsold goods, then at 
least he must of necessity pause until he can get paid for 
some of them. But no one expects either of these states 
to be permanent; if he did he would at the first oppor- 
tunity remove his capital to some other occupation in which 
it would still continue to employ labour. The capital 
remains unemployed for a time during which the labour- 
market is over-stocked, and wages fall. Afterwards the 
demand revives and perhaps becomes unusually brisk, 
enabling the manufacturer to sell his commodity even faster 
than he can produce it; his whole capital is then brought 
into complete efficiency, and if he is able he borrows capital 



224 THE ECONOMICS OF SOCIALISM 

in addition, which would otherwise have gone into some 
other employment. At such time wages, in his particular 
occupation, rise. If we suppose what in strictness is not 
absolutely impossible, that one of these fits of briskness or 
of stagnation should affect all occupations at the same time, 
wages altogether might undergo a rise or a fall. These, 
however, are but temporary fluctuations; the capital now 
lying idle will next year be in active employment, that 
which is this year unable to keep up with the demand will 
in its turn be locked up in crowded warehouses, and wages 
in these several departments will ebb and flow accordingly ; 
but nothing can permanently alter general wages except an 
increase or diminution of capital itself (always meaning 
by the term the funds of all sorts destined for the payment 
of labour), compared with the quantity of labour offering 
itself to be hired." Again, "Wages depend, then, on the 
proportion between the number of the labouring population 
and the capital or other funds devoted to the purchase of 
labour; we will say, for shortness, the capital. If the 
wages are higher at one time or place than another, if the 
subsistence and comfort of the hired labourers are more 
ample, it is for no other reason than because capital bears 
a greater proportion to population. It is not the absolute 
amount of accumulation or of production that is of im- 
portance to the labouring class ; it is not the amount even 
of the funds destined for distribution among the labourers; 
it is the proportion between those funds and the numbers 
among whom they are shared. The condition of the class 
can be bettered in no other way than by altering that 
proportion to their advantage; and every scheme for their 
benefit which does not proceed on this as its foundation, is, 
for all permanent purposes, a delusion." 

Mr. John Stuart Mill was a Malthusian. His idea was 



INDUSTRIAL CRISES 225 

that the working classes ought to keep down their families 
to the number which should enable them to get each a 
larger amount of this imaginary wages-fund. Strange to 
say, it never occurred to him that this phenomenon of infla- 
tion and depression takes place in countries where the 
population is stationary, or even decreasing, as well as in 
lands where the number of the people increases. That 
there has been no want of capital in England to employ 
the people, is apparent to the most casual thinker. Mani- 
festly, neither the over-population theory to account for 
the miserable wages of the workers, nor the abstinence the- 
ory to account for the accumulation of capital, will hold 
water for a moment. What abstinence is there in taking 
so much extra labour for nothing, and then merely debat- 
ing whether such surplus-value taken from the labourer 
shall be used to build larger factories, or to expend in lux- 
ury abroad? In either case the enforced abstinence is on 
the part of the labourer who gets less for his day's work 
than the labour-value he provides. The capitalist class 
takes relatively to the total production of the country an 
ever-increasing proportion of wealth for its own use. Un- 
der our system of unregulated competition, the worker on 
the average gains nothing, and if he limits his family as a 
class and reduces the number of available hands — a thing 
practically impossible — he but accelerates the introduc- 
tion of new machines, and in due time the re-creation of a 
relative over-population. 

The ordinary explanation of these troubles is empirical 
in the highest degree. There has been over-production, 
and, consequently, the markets are unable to absorb the 
amount of commodities thrown upon them. But why there 
has been this over-production; why the markets, which but 
yesterday were exceedingly active, become now depressed 



226 THE ECONOMICS OF SOCIALISM 

and gloomy; why prices, which were a few months, or 
even a few days ago, high and profitable, should thus sud- 
denly become low, and involve producers in loss, without 
any change having taken place in the instruments of pro- 
duction — these are questions which remain wholly unan- 
swered by the ordinary economist. 

A certain school of writers, not so much in vogue now 
as they were some years ago, attribute all the mischief 
to monopoly of land or the lack of free trade in land. 
" If," says one school, " land could be transferred from one 
owner to another as easily as commodities, then," so it is 
argued, "everybody who possessed the means of cultivat- 
ing the land being easily able to obtain access to it, there 
would be no break in the chain of connection between pro- 
duction and consumption, and all would be for the best." 
Unfortunately for this view, land, in the sense of the school 
of Cobden, as now represented by the supporters of the 
" National Reform Almanac " and persons of their views, is 
perfectly free in the United States of America, and as- 
suredly never before in the history of the race was there 
a greater amount of undeveloped land to be free with. 
Yet, in spite of this, and of the presence of one of the most 
active and capable populations in the way of production of 
wealth ever seen on the planet, America has suffered per- 
haps more severely from commercial crises during the last 
half-century than any European country. 

Our Australian colonies have afforded strong evidence 
on the same side. So that to-day the idea that free trade 
in land will have any serious effect in preventing commer- 
cial crises has faded from the minds of all save those who, 
having once taken up a theory, resolve that they will be 
wholly indifferent to facts which inconveniently refute it. 

In like manner, with the nationalisation of the land, 



INDUSTRIAL CEISES 227 

meaning thereby a confiscation of rent by the State and 
the conversion of all holders into State tenants. In India 
the land is nationalised in precisely that way over the 
greater part of the British territory, and, in the native 
States, the greater part of taxation is raised from the land. 
This, of course, is not rent, in the sense in which rent is 
understood in England; but it is State nationalisation of 
land, and the cultivator is owner, subject only to the pay- 
ment of his State dues. Of course, India is in a very dif- 
ferent economic condition from Western Europe or Amer- 
ica ; but the extreme poverty of the majority of the popula- 
tion — a poverty which has certainly increased and is in- 
creasing under British rule and nationalisation of the land 
— proves conclusively that State ownership of the soil, 
apart from other considerations, constitutes no high-road 
to national wealth, and in no wise interferes with those 
upsets of the capitalist system from which India has suf- 
fered just so far as she has been drawn within the vortex of 
international exchange. 

Then, again, there are the Protectionists, who aver that 
if each country strongly protected its own producers, and 
thus in some degree rounded itself up from the rest of the 
world, crises would become impossible, and depression un- 
known. Once more, the teachings of America, France, 
Germany, and Victoria, show us conclusively that protec- 
tion, even when pushed to an exceptional point, is quite 
powerless to arrest these terrible industrial convulsions, 
which inflict so much increase of misery on mankind. 

But if protection is no remedy, if free land and national- 
isation of land afford no relief, if every country which en- 
ters into and forms part of the world-wide system of pro- 
duction and exchange that now obtains, is subject to these 
same convulsions, no matter what its government, and 



228 THE ECONOMICS OF SOCIALISM 

without regard to its extent, position, or climate, if all this 
,is true — as true it is — then manifestly the Socialist ex- 
planation of these purely social phenomena holds the field. 

There are other circumstances lying on the surface of 
modern industrial arrangements, which tend to bring about 
a more speedy collapse, when the time is ripe for a break- 
down, and render a renewal of confidence slower than 
would have been the case in previous periods. Thus, for 
example, the greater part of the manufacturing and dis- 
tributing business of this and other great commercial coun- 
tries is done upon credit. That is to say, men who are en- 
gaged either in manufacture or trade rely upon the dis- 
count of their bills, maturing at longer or shorter periods, 
for the provision of the greater part of their capital. 
These bills are taken at varying rates of discount, accord- 
ing as the supply of loanable capital is plentiful or the re- 
verse. A turnover of two or three hundred thousand 
pounds, or even more, in the year, is thus often worked 
upon an absolute cash capital in the hands of the manufac- 
turer or the merchant not exceeding £10,000 or £20,000. 
Now, so long as the rate of discount or interest ranges 
low, say from 2 or 2% to 4% or 5, or even 5% per cent., 
those who are carrying on business under these conditions 
can do so at a profit, and therefore without making any in- 
road upon their original comparatively small capital in 
proportion to the business which they do. But as soon as 
the rate goes higher than this, everybody is anxious to 
realise their commodities in cash in order to meet their 
bills coming due; there arises a fear that the rate will go 
higher and higher still, and every one of these weak trad- 
ers is in fear of his life. 

The banks became very careful as to what paper they 
discount, confidence begins to be shaken, even in the 



INDUSTRIAL CRISES 229 

standing of the best firms, and an access of panic seizes 
upon the whole commercial community. Immediately 
there arises a cry for what are called "the means of ac- 
commodation/' meaning thereby the facility to exchange 
bills, and the commodities which those bills represent, for 
money, or money's equivalent, in the form of good bank- 
notes. The result of this again being that at all times of 
pressure we hear demands made for an expansion of cur- 
rency; and a variety of nostrums are propounded which 
would, it is hoped, bridge over those economic antagonisms 
that are really the cause of the whole crisis. Nevertheless, 
a very cursory survey of the crises of the past century 
would show that they have taken place when the currency 
has been plentiful, and when it has been scarce; when 
gold has had a high relative purchasing power, as at the 
present time, and when it had a relatively low power, as 
in 1857; when the banking system of a country has been 
comparatively sound, as in France, and when the banking 
system has been notoriously unsound, as it was in America 
in 1857. 

Leaving aside the crisis of 1815, the series of interna- 
tional crises of the nineteenth century begins with the 
year 1825. The upward course of business which had com- 
menced in the year 1817 took a further development in 
1819, when the Bank of England resumed specie payments, 
and a succession of good harvests helped on the period of 
inflation. Then first was fully felt by all classes the great 
change which had taken place in the methods of produc- 
tion in England since 1760. In every direction the in- 
crease of wealth in the eight years prior to the crisis was 
something phenomenal. This was the worst period in our 
history for the working-class in our factory districts. Fac- 
tory laws were as yet unknown, and the over-work on 



230 THE ECONOMICS OF SOCIALISM 

starvation wages is something horrible to read of even now. 
But the middle-class and the capitalists waxed exceed- 
ingly rich, and in consequence seemed to lose those bet- 
ter characteristics which had previously gained them wealth 
and power. 

The bubbles of the previous century were re-blown in 
more glittering and fantastic shapes. The follies of 1824 
and 1825 surpassed every previous financial folly. Classes 
of the population which had never before followed the will- 
o'-the-wisps of speculation tumbled over one another in 
their eagerness to put salt on the tails of these Sittings 
of the financial marsh. It was high-day and holiday for 
the Dousterswivels and John Laws, for unscrupulous 
schemers and half-insane enthusiasts. Everybody specu- 
lated in something : not only the world of business, but the 
entire population was swept along in the craze for gam- 
bling. Old and young, men and women, rich and poor, 
noble and simple, one and all were drawn into the throng. 
Even when all the purely absurd and swindling projects are 
eliminated, and only those are taken account of which have 
a reasonable claim to solidity, even then the commitments 
entered into by Great Britain are upon an astonishing scale 
— a scale rather suitable to the end than to the beginning 
of the nineteenth century, and certainly more fitly repre- 
senting the investments of twenty years than of two. 

The most ridiculous speculations were entered upon by 
those who were supposed to possess the shrewdest brains in 
the city. Money seemed to be rolling in in huge waves. 
The time was thought to be not far distant when all who 
deserved wealth could scarcely fail to be opulent, and a 
millennium of easily-earned incomes of many thousands a 
year had commenced for the really worthy of the popula- 
tion. Just at the very height of confidence and foolish- 



INDUSTRIAL CEISES 231 

ness, the crash came. In six weeks seventy provincial 
banks failed, and commercial houses tumbled down one 
after the other. Being the first sweeping panic of this 
kind which affected people throughout the country, nobody 
quite knew what to be at. The remarkable sagacity, of 
which the commercial classes are supposed to possess al- 
most a monopoly, was entirely wanting at the critical mo- 
ment. An unprecedented glut of commodities intensified 
the mischief arising from a sort of universal despair. 

Thereupon, Great Britain was over-run with workless peo- 
ple, and as Englishmen had not then learned to starve in 
silence and quietude, so that the sleep of the blunderers 
who had ruined them might not be disturbed, riots and 
tumults were common from one end of the island to the 
other. Imprisonments and shootings-down, and other law- 
and-order proceedings of course followed, and the workers 
were persuaded to return quietly to their hovels lest a 
worse fate than slow starvation should befall them. By 
degrees the "organisers of industry" recovered their 
senses ; but it was some time before the effects of this first 
great international crisis passed away. 

Foreign countries, even then, in the days prior to rail- 
roads and steam-vessels, felt the injurious influence of Eng- 
lish mismanagement. English goods were tumbled at 
slaughter prices on to foreign markets, and great difficulties 
were occasioned in financial and commercial centres which 
had scarcely participated at all in the previous inflation; 
whilst the great cotton gambling in the United States left 
behind it a legacy of trouble and uncertainty on the other 
side of the Atlantic. 

This first crisis, however, though exhibiting the same 
features on a smaller scale as its successors, was as nothing 
to those which followed. After a period of recovery, dur- 



232 THE ECONOMICS OF SOCIALISM 

ing which the banking system had a great extension, and 
speculation and gambling burst out anew, a shock sud- 
denly tumbled down the whole edifice of confidence. This 
time the shake came from the other side of the Atlantic, 
and in 1837 and 1839 again were seen all those features of 
glut, panic, incompetence, and, for the people, destitution 
and misery, which had been experienced twelve years 
before. 

In this crisis the United States suffered even more than 
Great Britain. So complete was the collapse that bank- 
ruptcy seemed to become the rule rather than the exception. 
Needless to say, the people who suffered most were pre- 
cisely those who had no control whatever over the manufac- 
turing, mercantile, and financial machinery to which they 
fell victims. But the international character of the crisis 
was manifested more clearly than before. A rise in the 
Bank rate in England meant a restriction of accommoda- 
tion all over the world, and people were wringing their 
hands in hopelessness at a recurrence of a state of things 
which, had they but taken into consideration the lessons of 
the previous crisis, they would have seen to be inevitable, so 
long as the system remained as it was. 

This crisis of 1837 to 1839 was the last under the old 
system of banking in England. In 1844, what was called 
the Bank Charter Act was passed, concerning which it is 
sufficient to say here that it is only maintained in exist- 
ence because everybody in the world of finance knows per- 
fectly well that it will be suspended at any period of ex- 
ceptional difficulty. 

When the Bank of England was re-constituted by this 
Act on its present foundations the magnates of the City of 
London were foolish enough to believe that henceforth 
such troubles as those of the two previous decades would 



INDUSTRIAL CRISES 233 

be rendered impossible. They little understood what was 
coming. One of the great difficulties in the capitalist sys- 
tem of production, as has been incidentally remarked in 
a previous chapter, is to regulate and harmonise the amount 
of capital which shall be expended on works of permanent 
utility, such as railways, canals, docks, harbours, and the 
like " affairs of long breath," as the French call them ; and 
the amount which shall be disposed of or allotted to what 
may be called the day-to-day business. 

Now the period from 1839 onwards saw the great de- 
velopment of the English railway system, though the first 
railway of any importance in this country had been opened 
between Liverpool and Manchester in 1830. Everybody 
was anxious to have a hand in this new method of getting 
rich in a hurry, by providing means of transporting com- 
modities and passengers from one point to another. The 
rush to make railways was so great, that had one-half the 
projects formulated been carried out, this island would 
have been gridironed from one end to the other. Even as 
it was, what was being done quite surpassed the necessi- 
ties of the period, and the preposterous premiums to which 
shares advanced in enterprises that were either hopeless in 
themselves, or were not then at all ripe for being carried 
out, prepared the way for a wholesome breakdown. 

At the same time, the introduction of free trade in 1846 
gave another impetus to trade and speculation. The year 
1847 saw an end to all this factitious prosperity, and for 
the third time within thirty years Great Britain was in the 
throes of one of those commercial convulsions which speed- 
ily spread to other centres. Paris, Amsterdam, and New 
York, all had their evil period of mistrust and misfortune, 
as a consequence of the crisis in industry and finance at 
the centre of international capitalism. Once again tens 



234: THE ECONOMICS OF SOCIALISM 

of thousands of workers were out of employment and starv- 
ing, and the famine in Ireland, arising largely from the 
shipment of food to England to pay absentee rents, still 
further aggravated the situation. As an evidence of the 
worthlessness of City calculations, the boasted Bank Act 
of 1844 proved useless at the first touch of trial. 

Not until that Act was suspended, and the directors were 
permitted to ride rough-shod over the law, was any return 
of confidence and commercial stability possible. On each 
occasion, be it remarked, the financial phenomena consti- 
tute the superficial portion of the crisis : the really serious 
part is that which underlies the perturbation of the stock 
markets. It is the constant renewal of the glut of com- 
modities, and the discharge of hands consequent upon the 
incapacity to produce more at a profit or to carry out great 
works any further, that constitute the really dangerous 
and permanently unmanageable features of the whole bus- 
iness. 

From 1847 we pass into the main period of modern de- 
velopment, and between that date and 1857 an expansion 
of trade, of colonisation, and of gold discovery took place, 
far transcending anything that had ever been seen before. 
Railways, steam-vessels, telegraphs, now began to exercise 
their full influence upon modern commerce, and, simul- 
taneously therewith, the expansion of the great machine 
industry in our own and foreign countries brought us into 
the period of fullest development of the capitalist system. 
There can be no doubt that the gold discoveries in Cali- 
fornia and Australia, though not the cause of the tremen- 
dous inflation which then followed, greatly tended to en- 
hance it, and to widen the area of speculation and gam- 
bling. The rise of prices stimulated production and en- 
couraged purchases. America, in particular, advanced in 



INDUSTKIAL CEISES 235 

prosperity by leaps and bounds, longer and more prodi- 
gious than anything previously recorded. 

Her inhabitants took care to let all the world know of 
her good fortune, and men persuaded one another that, with 
such an enormous field to open up and develop, a backset of 
depression could never come again. The banking system 
of the United States at this time poured fuel on the fire. 
It seemed then, to the most far-sighted, that there was noth- 
ing but continuous prosperity to look for. But, as always 
happens at such times, it was just when everything looked 
most satisfactory that the downfall took place. Every- 
where warehouses were choked with goods in anticipation 
of the high prices which everybody felt confident would be 
realised by their sale. Everywhere preparations were be- 
ing made to still further pile up commodities for an antici- 
pated good market. Suddenly one bank stopped payment, 
and then a suave qui peut took place, unparalleled, per- 
haps, in the mournful history of these crises. Nothing 
could be sold. Bills previously accounted of the best de- 
scription could not be met. All the gold from California 
and Australia was powerless to check the universal panic. 
From one end of the United States to the other people did 
not know for twenty-four hours whether they would keep 
clear of the Bankruptcy Court. 

Very speedily bank suspensions, railway defaults, clos- 
ing of factories, unemployed out on the street, gave evi- 
dence that all classes must suffer terribly before any return 
of confidence allowed the machine again to work with reg- 
ularity. England on this occasion likewise suffered ter- 
ribly. Workers were thrown out of work all over the coun- 
try, the fall of prices rendering it quite impossible to pro- 
duce at a profit, no matter how much wages might be cut 
down. Yet, as I have said, during the whole of this period 



236 THE ECONOMICS OF SOCIALISM 

gold was pouring into Europe on a scale quite unknown at 
any previous time. The year 1857 exhibited more clearly 
than ever before the fact that in this species of commercial 
and financial epidemic no quarantine can possibly keep out 
the disease. Beginning, as said, in America, it spread with 
the greatest rapidity to the United Kingdom, to France, 
Germany, Belgium, Austria, Italy, as well as in due time 
to India, China, and the Australian colonies. Eegard- 
less of barriers and indifferent to governments, this crisis 
swept on; and even to-day the remembrance of the year 
1857 and the anarchy then brought about in financial and 
industrial affairs, lingers in the minds of all who passed 
through it, or have been told of it by those who did. 

Nine years more, and yet again those who handle the 
complicated machinery of our modern industrial and com- 
mercial business proved themselves incapable of reading 
the signs of the times. Once more, therefore, this time 
again beginning in England, a shock was given to credit by 
the fall of Messrs. Overend, Gurney, and Co. in 1866, the 
effects of which would have been much worse but for a se- 
ries of circumstances that gave an exceptional impetus to 
English trade. It is impossible not to reflect upon the 
extraordinary short-sightedness of all this, proving again 
that even the very people who are most deeply interested, 
owing to class prejudice or the occupations of business, fail 
to understand what is going on around them, and conse- 
quently are wholly incapable of making preparations for a 
recurrence of a similar set of circumstances. 

The crisis of 1873 commenced for the first time on the 
Continent of Europe, and, strange to say, began in the 
city of Vienna, which until that date had never exercised 
any important influence on the finance of Europe, nor in- 
deed has it done so since. Commencing in the month of 



INDUSTRIAL CEISES 237 

May, 1873, the crisis worked wholesale destruction in Ger- 
many, in the United States of America, and later on had a 
most prejudicial influence upon English prosperity ; France, 
which had suffered so terribly from the war of 1870, being 
the country of Europe which escaped with least loss. I 
cannot now give any account of the huge building specula- 
tion in Vienna and Berlin, the wild fury of speculation in 
banking and brokerage banks which, led up to and helped 
on the eventual catastrophe. 1 But the effects were such 
that a complete reorganisation of finance in Germany and 
Austria followed, which did not prevent the most whole- 
sale misery amongst the working population at the time, 
nor fail to check legitimate industrial enterprise under 
capitalist production up to the year 1879. 

But the effects of this crisis were exhibited in their most 
acute form, and could be traced more clearly than else- 
where, in the great Eepublic on the other side of the At- 
lantic. The great extension of railroads which had taken 
place after the Civil War, the rush of European capital 
to obtain a share in the rising prosperity of this magnifi- 
cent territory, the steady extension along the lines of rail- 
ways, as well as through the valleys of the great rivers, 
the cultivation of all sorts of produce — all these, together 
had produced an appearance of prosperity which, extend- 
ing to the mountain regions of the West, and affecting the 
till then somewhat distressed districts of the South, built 
up a display of wealth which dazzled all beholders. 

With the crisis of 1873 all this real as well as apparent 
prosperity seemed to fade away like a mirage, and never was 
the glut of all commodities more clearly exhibited as the 

i Those who wish for further information on the subject may 
find it more fully treated in my " Commercial Crises of the 
Nineteenth Century." 



238 THE ECONOMICS OF SOCIALISM 

cause of crisis following upon economic antagonism, than at 
this time. True, in 1857, also, good harvests on both sides 
of the Atlantic, cumbering all the storehouses with grain, 
produced that terrible irony of men and women thrown 
workless on the streets, and starving, because food was too 
cheap and too plentiful for them to obtain it. But in 1873 
and 1874 in the United States things looked still worse. 
With the greatest power to produce wealth that the world 
had ever seen, and more favourable conditions in every re- 
spect to produce it in, between three and four millions of 
workless and foodless men paraded as hopeless tramps 
throughout the Eepublic. 

To pass through the principal industrial districts before 
the crisis and to revisit the same towns during it was indeed 
a lesson in the anarchy of capitalism. When all was going 
well, it seemed impossible for men to work enough; wages 
were high, goods were being thrown upon the market with 
unexampled rapidity. Furnaces, rolling mills, cotton, 
wool, and silk factories were all running at full speed. The 
working population, as well as the middle classes, seemed 
to think that there could be no end, as before, to this period 
of " boom." A few months later, what a change ! Busy 
cities comparatively deserted; works at a stand-still; men, 
women, and children looking round hopelessly — and there 
is no harder place in the world than America for the poor 
— for that employment which seemed little likely to come. 
Yet at this very time all the magazines were bursting with 
food-stuffs, and the store-houses were literally choked with 
useful articles that the people were not allowed to turn to 
useful purposes. 

A similar state of things a little later was to be found 
in England itself, where, though the crisis, as already said, 



INDUSTRIAL CRISES 239 

was not felt so speedily, bad times made their appearance 
all too soon. 

After another prolonged period of depression, involving 
an amount of unnecessary suffering, merely by reason of 
the incapacity of organised society to control the greatest 
means of making wealth that the world has ever seen, 
another upward period began. But this again was but tem- 
porary. The next crisis had its origin in France and was 
connected with the downfall of the Union Generale. In 
this case the effect was not so immediately to be observed 
as in either of the preceding instances ; it was rather a slow, 
grinding depression, than an immediate and sudden col- 
lapse. Nevertheless, though not so marked in its features, 
every country was affected; and in England from 1883 to 
1887, or even 1888, there was a period of worklessness for 
huge masses of the people, and restricted business for the 
manufacturing, mercantile, and financial classes, which, 
equalled almost anything that had gone before. Once 
more, in every country where capitalism prevailed, the 
difficulty in disposing of the accumulation of products in 
every department resulted in widespread distress for the 
workers of all civilised nations. 

Too much food for the people to have withal to eat; too 
much of clothing for people to be clothed; too much fuel 
to provide them with warmth. Such is the anarchy of our 
order of to-day. 

The recovery commenced, as I say, in 1887, and was 
very short-lived. This, indeed, is a noteworthy feature of 
all these great crises. They follow one another at ever- 
shortening distances, and last longer each time that they 
come. Three years of good trade, chiefly due to the ex- 
ceptional development of South America, saw the civilised 
world involved in another and terrible depression. The 



240 THE ECONOMICS OF SOCIALISM 

great Baring crisis of 1890 is still fresh in the memory of 
all. First felt terribly in Great Britain, and then spread- 
ing with tremendous rapidity to France, Germany, and 
Austria, it slowly worked its way to America in the west, 
and to Australia on the other side of the world. It is not 
too much to say that the five years 1890 to 1895 were in 
England a period of slow, persistent stagnation, during 
which the numbers of the unemployed and partially em- 
ployed exceeded those of which there is any record what- 
ever. 

This lack of work arose, as usual, not from de- 
ficiency of production, or from abnormally high prices, but 
from over-supply of the very things required for human 
subsistence, and the low prices at which they could be ob- 
tained. In America matters were worse still. The ter- 
rible crisis of 1893 surpassed even that of twenty years be- 
fore in the injury which it did to the working-people. 
Wages fell in every department of trade, and the men and 
women competing for employment upon a market already 
overstocked found themselves encountered in their own 
country by swarms of Italians and Hungarians, not only 
accustomed to a lower standard of life than themselves, 
but also, from their ignorance of the language, virtually 
mere slave-driven starvelings. 

The mischiefs below reflected themselves above in the 
collapse of one bank after another, in a succession of bank- 
ruptcies almost unparalleled, and in one great railway 
after another being thrown into the Beceiver's hands. 
Matters must indeed have reached an unprecedented pitch 
when railway companies of the standing of the New York 
Central and the Michigan Central, not to speak of private 
capitalists of enormous wealth, were driven to borrow 
money on the English market at rates of interest which, 



INDUSTRIAL CRISES 241 

far exceeded anything before heard of on similar security. 

In Australia, at a slightly later date, the same thing oc- 
curred on an even greater scale, regard being had to the 
disparity in population. It may be said that only three 
banks in all the Australian colonies kept their heads above 
water. In Melbourne, the best of real estate in the city 
itself was almost unsaleable. Sheep-runs, which shortly 
before had been valued at hundreds of thousands of pounds, 
could not find purchasers at any price. With millions of 
acres of good land all around them, with one of the finest 
climates in the world to enjoy, the problem of the unem- 
ployed became as pressing as, and even more dangerous, in 
Melbourne, Sydney, and Adelaide, than it had been in Eng- 
land. What is remarkable in this most recent group of 
crises, commencing with 1890, has been the character of 
the men immediately involved in the ruin and devasta- 
tion brought about. In America, in Great Britain, in 
Australia, on the Continent of Europe, it has been the very 
pick of capitalist society, the highest names in the commer- 
cial and even the aristocratic world, that have utterly failed 
to show any capacity whatever to deal with what they are 
pleased to call " their own businesses." 

Leaving aside cases of individual rascality, which have 
really become too numerous to consider as in any way 
exceptional, it is clear that the transfer now completed of 
the control of adventure and industry from the mercantile 
to the financial class tends to intensify such crises as those 
which now so constantly afflict the industrial community. 
The mercantile class could, and did, enter upon a business 
which might extend over many years with its own capital, 
and was prepared to take success or failure as it might 
come. In their best period, they looked far ahead, and 
made their calculations with care and ability. The finan- 



242 THE ECONOMICS OF SOCIALISM 

cial class, on the other hand, necessarily restricts its pur- 
view. Its one object is, not the gain of success in the 
future, but realisation, by sale to the public, of immediate 
profit in the present. Consequently, the capitalist class of 
to-day, as represented in its fullest development, is the most 
short-sighted and incompetent dominant class, from the 
point of view of the community, of which history shows any 
record whatever. 

But while these crises pass — pass — pass — and come 
again, unknown to them and unconsciously organised by 
them, the corrective is developing out of the conditions of 
the time. Each successive crisis now tends to the still fur- 
ther establishment of industrial monopoly. The smaller 
organisms in every department of trade are being relent- 
lessly crushed out. Trusts, "combines," "corners," now 
pervade every department of production, and the monopo- 
lies of the twentieth century seem likely to surpass tho^e 
kingly monopolies of the sixteenth century against which 
our ancestors rose in arms. 

Already the form of industrial and commercial crises 
underwent in consequence considerable modification at the 
end of the nineteenth and the beginning of the twentieth 
century. Capitalism, by the growth of Trusts, Combines, 
Cartels, Trade Agreements and Manufacturers' Under- 
standings referred to, began to co-ordinate its own anar- 
chical methods of helter-skelter production and realisation. 
A steady reduction in the number of great banking institu- 
tions and a more vigilant survey of the scope of the world- 
market in each branch of industry tended in the same direc- 
tion. 

As a result, the approach of over-production and glut 
of commodities in each line of business was taken ac- 
count of systematically and dealt with by means of restric- 



INDUSTRIAL CEISES 243 

tion of banking credits, gradual rises in the rate of discount 
all along the line, reduction of output, with consequent 
" short time " for the wage-earners in the different indus- 
tries, and a recognition of the existence of a slackening de- 
mand for commodities with a lower range of prices. In 
this way headlong competition was brought under control 
to a considerable extent. Industrial and commercial crises, 
after a period of prosperity, were more and more taking the 
shape of a prolonged dry-rot in trade, with a steady margin 
of underpaid and unemployed wage-earners; instead of ap- 
pearing in the shape of such periodical crashes of credit 
and breakdown of shaky realisations due to over-produc- 
tion all round, which have been briefly summarised above. 
In Great Britain, though Trusts and Trade monopolies 
have not advanced so far as in the United States and Ger- 
many, steps were taken by the industrial chiefs to deal in 
this way with the inevitable outcome of competitive produc- 
tion. The effect upon the working-class of cities and towns 
dependent wholly upon one staple industry, of this par- 
tially organised shrinkage of production and employment, 
was deplorable. A distinct lowering of the standard of 
physical and intellectual life was observable. An atmos- 
phere of gloom pervaded the population during these pe- 
riods of prolonged "bad trade," whose duration extended, 
with increasing length, at each renewal of depression. So 
much so, that the years of slack business were exceeding 
those of activity in several centres and the fringe of unem- 
ployment though smaller in dimensions was becoming al- 
most permanent, this fringe of unemployment being a 
necessity of the continuous functioning of the entire cap- 
italist system. 



CHAPTER X 

OBJECTIONS TO THE LABOUR THEORY OF VALUE 

It was inevitable that, when Marx's theories are being 
accepted by leading economists all over Europe, and sev- 
eral Governments have had Marxists as their Prime Min- 
isters and Ministers, great efforts should be made to show 
that these opinions are erroneous. The capitalists, their 
bourgeoisie and their economists, are still not ready to sur- 
render, without a struggle, either in theory or in practice. 

That is natural. A class which nowadays dominates so 
complex a society as ours, which has produced so many men 
of genius in the world of science, of art and of letters; 
which believes that its function as an organising and ad- 
ministrative body is essential to the continued existence 
and progress of society as a whole ; which regards itself as 
engaged in steadily improving the general status of the 
human race; which, besides, has furnished even the theo- 
rists and the leaders of the new Labour movement, from 
among its own learned men, may be forgiven when its mem- 
bers refuse to recognise that, like the land and slave own- 
ers and the feudal barons and serf -lords of old — who also 
produced great men in their day — the period of its own 
downfall is rapidly approaching. And the synthesis of 
Marx's analysis involves nothing short of such a downfall 
for them. Hence it is that they, with their economists, 
carry on the conflict not only in politics, in social affairs, or, 
when necessary, on the field of physical conflict, but like- 
wise in the department of thought and reason. 

244 



OBJECTIONS TO LABOUK THEOEY 245 

Thus the effort has been made to prove that the entire 
work done by Marx and his school is really of no impor- 
tance : a mere will-o'-the-wisp, certain to lead the ignorant 
and credulous into the bog of miscomprehension and illu- 
sion. We are told plainly, therefore, that, under the free 
competitive system of capitalist production for exchange, 
the relative value of commodities is not determined, on the 
average, by the quantity of social labour embodied in them. 
Evidence to that effect is furnished by pointing to natural 
objects, or raw materials, which, when brought into the 
sphere of capitalist production by the expenditure of a 
given quantity of labour-power, are of greater value than 
other natural objects, or raw materials, of a somewhat sim- 
ilar character, which are made available in the same sphere 
of capitalist production, by the expenditure of an equal, 
or only very slightly less, expenditure of labour-power. 

Therefore, the raw material of superior quality, created 
by nature herself, has a higher relative exchange of value, 
before and after it is brought forward on to the market, 
than the material of inferior quality belonging to the same 
class of natural objects. Consequently, the private owner 
of the superior or exceptional raw material obtains in ex- 
change with other commodities a higher rate of relative 
value, or a higher price, than the private owner of the in- 
ferior raw material, according to the social estimate of the 
time. That this is, in practice, the truth cannot be dis- 
puted. 

But the process of capitalist production has only begun, 
when raw materials grown or furnished by nature, no mat- 
ter what their respective qualities may be, are taken into 
the workshop, the factory, the rolling-mills, &c, in order 
to convert them into finished commodities, by the embodi- 
ment of simple, abstract human labour in them. These 



246 THE ECONOMICS OF SOCIALISM 

raw materials of different qualities and varying values, 
that is to say, convey no more value to the finished com- 
modities, when produced, appropriated and exchanged, 
than that which they possessed at the start. They form 
part of the original constant capital, the value of which 
neither gains nor loses during the process of production 
and exchange. 

Such alteration of form without change of value involves 
the appropriation of no surplus-value, nor, therefore, profit 
for the owner, of the capital, either in the shape of sur- 
plus commodities or in the shape of cash, upon the realisa- 
tion of all the commodities so produced, by sale for money. 
The origin of surplus value remains where it was before — 
in the amount of unpaid labour embodied in commodities, 
for which no remuneration whatever has been given in the 
wages paid by the capitalist during the period of produc- 
tion. This surplus- value he appropriates first in com- 
modities and then in money. 

Yet we are told that the variations in the quality and 
value of natural objects, before they enter into the sphere 
of production and exchange at all, destroy the whole theory 
of abstract, social, labour value as measuring the relative 
value in exchange of commodities which can be indefi- 
nitely reproduced I There is no need to labour this state- 
ment and its refutation any farther. 

But, apart from this contention, there are other points 
which are insisted upon as invalidating the theory. First, 
that the concentration of capital in larger and larger 
masses, for the purposes of production, which Marx pre- 
dicted, is not being borne out by the facts, as recorded 
in the countries which are most fully developed econom- 
ically. In view of what is going on at the present time, 
it is scarcely necessary to consider this argument. The 



OBJECTIONS TO LABOUR THEORY 247 

chief feature of economic progress, throughout the capital- 
ist world to-day, is the growth of great Trusts, Combines 
and Monopolies, in every department of production and 
distribution, with a view to minimising waste, curtailing 
unnecessary expenditure and limiting cut-throat competi- 
tion and " over-production " by capitalists in the same 
branches of trade. Thus the manifest tendency of capital 
towards concentration in greater and greater masses is obvi- 
ous. 

A few critics have been misled by inaccurate statistics 
of individual shareholders in Limited Companies, and 
have persuaded themselves, in consequence, that wealth is 
much more widely distributed than it is. Edouard Bern- 
stein, in his "revisionist" period, was one of those who 
made this mistake. But, so long ago as 1913, in two lec- 
tures delivered at Buda-Pesth, he frankly and completely 
abandoned his anti-Marxist views. Clearly, also, even if 
Marx's anticipations had been falsified, instead of being 
verified, this would not have affected the truth of his ex- 
change theory in itself. 

Secondly, it has been argued that, though the combina- 
tion of large capitals may have been going on, the inde- 
pendent bourgeoisie have not been crushed out by the com- 
petition of the larger capitals embarked in industry, either 
in the productive or in the distributive sphere. But this 
again is simply a mistake as to facts. What has actually 
happened is this: That while the larger bourgeoisie have 
been displaced or absorbed by the still larger combinations 
for production and distribution, in some directions, the 
small shop-keepers have been simultaneously increasing. 
But these small retailers, who may have increased with the 
increasing population, are merely petty distributors, at- 
tendants upon the wage-earners, part of the hand-to-mouth 



248 THE ECONOMICS OF SOCIALISM 

proletariat themselves, toiling excessively long hours to se- 
cure subsistence by their " profits," and not a Third Estate, 
a powerful middle class, or bourgeoisie, at all. The differ- 
ence between these poverty-stricken purveyors to the needs 
of the worker and the old well-to-do and independent shop- 
keeping class is too marked to be honestly overlooked even 
by the most prejudiced critic. 

In one direction only is there an apparent exception to 
this general rule of the concentration of capital, the con- 
tinued increase in the scale of industrial production and 
the gradual elimination of the producer on a small scale. 
This is in relation to the land. It seems now well estab- 
lished that the general tendency, even in countries where 
there is still a vast " frontier " open to occupation and till- 
age, is not towards the success of huge factory farms of 
from 10,000 to 40,000 acres in one block, notwithstanding 
the great improvement in machinery and scientific manur- 
ing, skilled dairy-farming and the like. Relatively small 
farming, of from 200 to 500 acres in one holding, seems 
to be on the increase : the unit of profitable farming being 
lower apparently under such circumstances than might 
have been supposed beforehand. , 

Here the law of the concentration and enlargement of 
capital — where co-operation has not been introduced — 
comes so far on the next plane. The cultivators, though 
nominally independent farmers, find themselves at the 
mercy of, and in effect working for, the great railway com- 
panies, elevator companies, creamery companies, canning 
combinations, banking monopolies, and the like. But the 
actual concentration of capital for the capitalists and 
against the farmers goes on none the less rapidly. It is 
only the concentration of capital on actual land-cultiva- 
tion which has not proceeded so fast. This is specially no- 



OBJECTIONS TO LABOUR THEOKY 249 

ticeable in the United States and Canada. So crushing, in 
fact, has the tyranny of capital in these secondary depart- 
ments become, in many districts of these two countries, that 
the farmers themselves, hitherto the most conservative 
class in the world, and the least inclined to political action 
in their own interest, have been literally forced into polit- 
ical revolt, in order to protect their economic status against 
the combination of profiteers who dominated not only the 
distributive and financial but the political sphere. 

Where these farmers have succeeded in making their po- 
litical power felt they have organised collectivism coopera- 
tive and limited Socialist agencies to prevent exploitation 
by capital, and to extend improvement by State encourage- 
ment. Here, as elsewhere, therefore, the general movement 
has been towards the control and ownership of concentrated 
capital and monopoly in collective interest, and in the 
United States and Canada the farmers, though not as yet 
Social-Democrats, have been wise enough to use political 
action successfully towards collectivist ends. 

Thirdly, attempts have been made of late to show that 
the work of intelligent human beings, in the shape of so- 
cial service, organisation of labour in factories, in work- 
shops, on the land, and so on adds to the value of commodi- 
ties in exchange, and thus modifies the basis of the labour- 
value theory. This claim is, of course, not a modification 
but a direct contradiction of the whole labour theory of 
value. 

But what does a man do who introduces, let us say, a bet- 
ter system of organisation of labour and management into 
a furniture factory? 

This organiser enables the employer to produce a 
greater quantity of tables, chairs, chests of drawers, desks, 
and the like with the same amount of human labour 



250 THE ECONOMICS OF SOCIALISM 

which he used before. There are more useful arti- 
cles produced, that is to say, by the same quantity 
of labour. The effect is the same as that resulting from 
the introduction of an improved machine into the industry. 
There is, obviously, in both cases, less, not more, human 
labour embodied in the different or separate pieces of fur- 
niture produced, than there was before the work in the 
factory was re-organised. 

What does this mean? That the furniture manufac- 
turer can afford to exchange his commodities, or realise 
them in gold, for a lower, not for a higher, exchange value, 
or price, than he did before his " hands " were taught how 
to economise their labour-power, because, owing to the bet- 
ter organisation, more goods are produced with the same 
expenditure of labour-power. Thus he can undersell his 
competitors in the market, unless and until they adopt his 
improved methods. And he does so to his own profit, not 
because the application of intelligence to his business has 
increased the value in exchange of each of his articles of 
furniture. Quite the contrary. Precisely by reason of 
that fact that the labour-value embodied in every piece of 
furniture has been reduced by his foresight and superior 
business aptitude and he can therefore afford to accept a 
lower price in competition with his rivals. 

Therefore, the whole organisation is set in motion again 
for the purpose of obtaining surplus value, created by the 
expenditure of labour-power for which no wages are paid, 
in the manner described in the foregoing pages. The 
clever organiser or manager has added nothing whatever to 
the value of the products in exchange, whether he acts 
upon the Taylor system, or any other device for improv- 
ing the application of labour-power to the production of 
commodities. 



OBJECTIONS TO LABOUR THEORY 251 

A fourth objection brought forward since the war, and 
especially since the great influence of extensive labour or- 
ganisations has been manifested in raising wages to an 
unprecedented nominal, and even relative, height (in the 
United States more particularly), is that labourers skilled 
and unskilled have now reached such a status, owing to 
these higher wages, which they have secured for their la- 
bour-power, and the shorter hours they now work, that it 
is quite out of place to speak any longer of "subsistence 
wages " or of the workers as " wage-slaves of capital." La- 
bourers, it is urged, now have the whip hand of capital and 
can obtain adequate remuneration for their toil, after cap- 
ital has received a legitimate profit. To speak of wage- 
earners as proletarians who drive to their work and who are 
not compelled to toil more than eight, or even seven or six, 
hours a day is absurd. Such is the view put by a very well- 
known American Social-Democrat. 

But we have yet to see, even in America, where wealth 
has been piled up during the past seven years at a rate quite 
unprecedented in economic history, that this remarkable 
relative prosperity for the wage-earners will be maintained. 
In Great Britain, the uncertainty of maintaining wages at 
their present level relatively to the existing high prices has 
already impelled most of the labour leaders to strive for a 
reduction of the prices of the necessary articles comprised 
in the standard of life of the workers in preference to press- 
ing on in the vicious circle of higher wages, higher prices, 
and vice-versa. This is due to the fact, proved to them by 
actual experience, that the endeavour to raise and to keep 
wages at a level which represents a high standard of sub- 
sistence, in the face of rapidly rising prices, is by no means 
easy and involves, in many cases, loss and privation by 
strikes, which have been serious and frequent of late years. 



252 THE ECONOMICS OF SOCIALISM 

Even the very highest wages, also, and that illusory cap- 
italist arrangement, profit-sharing, — feeding a dog with 
sections of his own tail — do not change in the very least 
the basic conditions of capitalism; by which the toilers are 
divorced from any control over their own means of making 
and distributing wealth, suffer from constant anxiety as to 
how long full employment will last, and are quite unable 
to emancipate themselves from that domination of the cap- 
italists and bourgeoisie which constitutes them, however 
well-paid, a wage-slave class. So long, likewise, as capital- 
ism and production of commodities for profit and ex- 
change last, so long as they are obliged to sell their labour- 
power for money wages to the class which owns the means 
and instruments of production and distribution, including 
the land — so long will they remain a wage-slave class, no 
matter how thickly their chains may be temporarily gilded 
by high remuneration. 

Finally, we have the supposed economic contradiction 
between the Third Volume of the " Capital " and the First. 
This is the only point which really affects Marx's theory as 
a theory. But we must begin the consideration of this 
assumed contradiction with a passing reflection upon the 
strange inconsistency of even his ablest opponents. Was 
Marx the man of extraordinary ability which they one and 
all admit him to have been ? Did he throughout his career 
invariably exhibit a masterly capacity for analysis and an 
admirable command of logic and dialectic in all its forms ? 
Unquestionably he did. Could he be, at one and the same 
time, an absurdly confused thinker, who worked sixteen 
hours and more a day during the greater part of his life in 
chase of an economic will-o'-the-wisp which landed him in 
a bottomless bog of hopeless incompatibility at the close 
of his arduous career? Yet that is what the majority of 



OBJECTIONS TO LABOUR THEOEY 253 

his critics virtually contend that he was. This is an in- 
compatibility far greater than that which these same crit- 
ics allege that they have discovered in his writings. How 
reconcile, then, these contradictory evaluations of Marx's 
intelligence? How account, besides, for the awkward fact 
that Engels, himself a political economist second only to 
Marx, and a very shrewd and successful man of business 
into the bargain, was afflicted with the like mental inca- 
pacity, not only during his intimate friend Marx's life- 
time, but for many years after his death ? 

The whole idea is one tissue of absurdity. Marx knew 
perfectly well what he was about, from the beginning of his 
work, which led to his publication of " Zur KritiJc per Poli- 
tischen Economic," in 1859, and all through. Neither he 
nor Engels was in the slightest degree misled by a chimera. 
There is no contradiction whatsoever between the First 
Volume of the " Capital " and the Third. As a matter of 
fact, the elaborate notes left behind by Marx for the Third 
Volume were made, and the general tenour of the whole 
volume was decided upon, before the First Volume was be- 
gun. There was not, therefore, and there could not have 
been, any attempt on Marx's part, he being in collusion 
with Engels, to fudge in the Third Volume a solution to 
the problem which Engels propounded, in his preface to 
the Second Volume, after his friend's death ; which problem 
remained wholly unsolved by Marx's critics during the 
years that elapsed before the appearance of the denounced 
Third Volume. 

The truth is that one and all of Marx's critics in this 
matter, and some even of his followers, fail to comprehend 
thoroughly the very foundations of that great writer's sys- 
tematisation. He was engaged upon an elaborate analysis 
and explanation, in the first place, of the general laws of 



254 THE ECONOMICS OF SOCIALISM 

political economy in the abstract, under the economic, his- 
toric and social conditions of his time, as a mathematician 
might investigate the general laws of mechanics, or of 
vibrations. Precisely the same with the theory of social 
labour-value in exchange and the consequences deduced 
therefrom. 

The main reason why this theory has been misunderstood, 
by those political economists who have honestly declared 
against it, is that they have not thoroughly grasped the full 
meaning of constant capital, as distinguished from varia- 
ble capital, in the sphere of capitalist production, and, con- 
sequently, have failed to comprehend whence surplus value 
is derived, why rate of profit differs from rate of surplus 
value, and to understand the general effects of the relations 
between constant capital and variable capital, in the func- 
tioning of the progressive capitalist system. Now in the 
varying composition of active capitals engaged in industry, 
the constant portion which consists of machinery with its 
wear-and-tear, raw materials, incidental materials, &c, as 
already stated, is always becoming relatively larger and 
larger, as society advances in industrial development. 
This constant capital, with all its constituent values, con- 
tributes no additional value to the resultant commodities 
in the course of production. None whatever. 

The variable portion which is devoted to the purchase of 
labour-power by payment of wages becomes on the other 
hand relatively smaller and smaller. This variable cap- 
ital it is which, as explained, not only is reproduced in the 
commodities as the social labour value of the wages paid 
to the workers for their labour-power and embodied in the 
commodity, but provides the surplus-value, consisting of 
unpaid labour embodied in the same commodities, which is 
the object of the whole transaction. As has been seen in 



OBJECTIONS TO LABOUR THEORY 255 

the chapter on " Profit," the rate of profit is reckoned on 
the whole of the capital embarked, constant capital 
as well as variable capital, and as the constant capital 
relatively to the total capital embarked continuously in- 
creases and the variable capital which comprises in its pur- 
chase the value-creating labour-power continuously de- 
creases, relatively to the total capital embarked, the rate of 
profit must continuously fall. 

This no one before Marx had ever explained. 

So, likewise, in regard to the partition of surplus value 
and gross profit into its various distributive parts. This 
surplus value is engendered in the sphere of production : it 
is only realised in the sphere of circulation. Commodities 
are commonly sold by the individual capitalist producer at 
a price considerably below this actual value in exchange, 
such value, as a whole, comprising, of course, the total sur- 
plus value embodied in the course of production, and, tem- 
porarily, at the disposition of this capitalist producer. In 
that way he hands over a portion of the surplus value he 
has obtained from the unpaid labour of his work-people 
embodied in commodities (these reckoned as the gross 
profit on the whole of his own capital embarked in the bus- 
iness) to be divided up, apart from rent, among the capitals 
engaged in other branches of business; which, of them- 
selves, though necessary to the realisation in cash of surplus 
value and profit, may produce no surplus-value whatever. 

Now it is perfectly true that if of two industrial capitals 
of equal size, functioning under the same conditions, one 
capital is composed of a large proportion of constant cap- 
ital [capital embarked in machinery, raw materials, inci- 
dental materials, &c] — with a relatively small propor- 
tion of variable capital — [capital embarked in paying 
wages for the purchase of labour-power] — and another 



256 THE ECONOMICS OF SOCIALISM 

capital consists of a small proportion of constant capital 
with a relatively large proportion of variable capital, it is 
directly contrary to Marx's entire theory of labour-value 
that both these capitals should produce the same amount of 
surplus-value. 

But then Marx nowhere says that they do or can. Far 
from this, he expressly states in the Third Volume that this 
is quite impossible. Thus : "If a capital consisting of 
90 per cent, of constant capital plus 10 per cent, of varia- 
ble capital produces as much surplus-value, or gross profit, 
with the same degree of exploitation, as a capital consist- 
ing of 10 per cent, of constant capital plus 90 per cent, of 
variable capital, then it would be as clear as daylight that 
surplus-value, and value in general, must have an entirely 
different source from labour, and that political economy 
would then be destitute of any reasonable foundation." 
Nothing could possibly be more stringently put than that. 
Yet Marx is accused of having "admitted" in his Third 
Volume that his whole labour theory was unsound ! 

In the First Volume of " Capital " the operations of the 
individual capitalist, with his own special set of work- 
people and the surplus-value they produce by their labour, 
are dealt with. In the Third Volume the manner in which 
the total surplus-value is obtained and the gross profits are 
divided up among the various groups of capitalists is in- 
vestigated and the way in which an average rate of profit 
upon capital as a whole is arrived at. We are no longer 
looking on at the proceedings of the individual capitalist: 
we are occupied with the entire social capital and the par- 
tition of the whole of the surplus-value produced by all the 
wage-earners under capitalist control. 

Under these conditions, capitals of equal dimensions as a 
whole receive equal amounts of profit, regardless of their 



OBJECTIONS TO LABOUK THEOEY 257 

composition in constant and variable capital. This is due 
to the fact that, although they do produce different amounts 
of surplus-value, the capital which contains most constant 
capital obtains, in the course of exchange and realisation, 
part of the surplus-value created by the capital which con- 
tains most variable capital: the different capitals engaged 
in the various spheres of production and distribution re- 
ceiving their remuneration in the shape of average profit, 
according to the ordinary rules of competition and supply 
and demand. 

The reason why this explanation has not been grasped 
by Marx's critics, and is imperfectly understood by some 
of his own followers, is that they do not distinguish be- 
tween the " price of production " and the ordinary " cost 
of production " ; because, also, they will persist in consider- 
ing the question of the apportionment of general profit, de- 
rived from the social unpaid labour of the wage-earners at 
large, among the capitals engaged in social production 
and distribution, from the point of view of the individual 
capitalist, and his personal appropriation of the surplus 
value produced by the unpaid labour of his own " hands." 

Consequently, they fail to comprehend how it comes 
about that capitals with relatively greater amounts of con- 
stant capital in their composition obtain for their goods 
when realised prices higher than their exchange value, 
measured in the social labour-value embodied in them; 
while capitals with relatively less constant capital in their 
composition obtain lower prices for theirs. This is in com- 
plete consonance with, and not in opposition to, the social 
labour theory of value. 



CHAPTER XI 

THE FINAL FUTILITY OF FINAL UTILITY 

The growth of general interest in political economy,, or 
economics, and the increasing number of people of all 
classes who devote themselves to the serious study of this 
difficult subject is one of the most hopeful signs of the 
times. We are manifestly in a period of crucial transition, 
alike economically and politically. It is impossible, how- 
ever, to deal consciously with this development, due in the 
main to the productive forces of our time, unless the sys- 
tem in which we are at present living is understood, and 
its tendencies are comprehended by, at any rate, a consid- 
erable fraction of the active part of the community. 

Consequently, discussions on the theoretical basis of eco- 
nomics are more necessary now than ever before. If there 
are among educated and thoughtful men two diametrically 
opposed and incompatible theories in regard to what regu- 
lates the exchange value of the commodities which consti- 
tute the wealth of our modern society, nothing is to be 
gained by shading over the antagonism between these con- 
flicting schools of thought. Far better is it, in my opinion, 
to accentuate the differences which undoubtedly exist on this 
point, in order that students may be led to think out the 
whole question for themselves, uninfluenced by mere au- 
thority, or great reputations on either side. 

The object of this chapter is to expose the fallacies of 
the theory of Final Utility as a measure of value. The 
theory is, of course, associated with the name of Professor 

258 



FINAL FUTILITY OF FINAL UTILITY 259 

Stanley Jevons, and is accepted at the present time by 
many academic economists. If I can show that this theory 
is merely an obscure way of re-stating the old supply-and- 
demand thesis of Lord Lauderdale, Bastiat, and others; 
that its originator does not adhere to it himself; that 
neither in his own hands nor in those of his followers has 
it solved any great problem or led the way to any dis- 
covery, but, on the contrary, has rendered confusion worse 
confounded, and has given rise to the most ridiculous con- 
jectures and absurd assumptions; that also his principal 
supporter himself abandons his master's own dialectic — if 
I succeed in doing this, I venture to think that I shall have 
justified the title of my chapter. 

I may say, however, that I do not propose to inflict any 
portion of the Differential Calculus upon my readers. If 
it pleases my critics to aver that my not having set out in 
full Homersham Cox's proof of Taylor's Theorem is irre- 
fragable evidence that I am incapable of understanding 
how it comes about that a quarter of wheat and a definite 
sum in gold constitute an equation of value in London to- 
day, I shall not attempt to controvert them. Neither shall 
I raise any objection if they constate that my inability to 
discover the locus of the curve of human greed, or to ex- 
press the limits of human happiness in the form of an 
algebraic expansion, inevitably prevents me from fathom- 
ing the mysteries of capitalist production for profit. I 

ay 

shall allow all the missiles of — to fly round my head 

dx 
without dodging, and the fragments of Conic Sections that 
may be aimed at me will not disturb my intellectual equa- 
nimity for a moment — impavidum ferient ruince — the 
debris of shattered arguments are not rendered more for- 



260 THE ECONOMICS OF SOCIALISM 

midable by being enveloped in useless mathematical for- 
mulae 

"Kepeated reflection and inquiry/' says Jevons at the 
beginning of his work on " The Theory of Political Econ- 
omy," "have led me to the somewhat novel opinion that 
value depends entirely upon utility." Eicardo had already 
answered this bald and " somewhat novel " statement by an- 
ticipation when he wrote : " When I give 2,000 times more 
cloth for a pound of gold than I give for a pound of iron, 
does it prove that I attach 2,000 times more utility to gold 
than I do to iron ? Certainly not : it proves only that the 
cost of production of gold is 2,000 times greater than the 
cost of production of iron. If the cost of production of the 
two metals were the same I should give the same price for 
them ; but if utility were the measure of value it is probable 
I should give more for the iron. It is the competition of 
producers . . . which regulates the value of different com- 
modities. If, then, I give one shilling for a loaf and 21 
shillings for a guinea, it is no proof that this in my esti- 
mation is the comparative measure of their utility." 

But it would appear that Jevons, who protests most rea- 
sonably, as other economists have done before and since, 
against the use of the word " value " to express various 
meanings in economics, plays the same trick with the word 
"utility" on his own account. He is analysing, or at- 
tempting to analyse, the ratio of exchange in a society in 
which, economically speaking, exchange is the dominant 
factor. It is not merely the superfluity which is ex- 
changed after the needs of the producers themselves are sat- 
isfied, nor is production for exchange the object of one por- 
tion of the community, and production for immediate use 
that of another. All goods are produced for exchange on 
the market of the world ; and, in the majority of cases, the 



FINAL FUTILITY OF FINAL UTILITY 261 

articles produced are of no utility to the persons who pro- 
duce them. 

The commodities are produced under the control of a 
particular class, namely, the capitalists, for profit; and 
chemical, mechanical, and other improvements are going 
on which fall into the hands of this dominant class and 
are used by them, in competition with their fellows, to 
extend their own market, and lessen that of their rivals. 
The determining element in this struggle is cheapness. 
The scale of production is, however, determined by these 
same social considerations. A manufacturer cannot pro- 
duce on the scale which he himself pleases. That is de- 
termined for him by his surroundings. He must use the 
best machinery, and organise his hands in the most ap- 
proved method, or submit to being crushed out by those 
who read the signs of the times and translate them into ac- 
tion better than he can. 

Nowadays, also, it is not demand which invariably pre- 
cedes supply, but supply which in many cases anticipates 
and almost forces demand. Furthermore, the utility of 
different articles thus produced by capitalists for exchange 
is determined, not by their real utility, in the sense of use- 
fulness to the consumers, but by the social position and 
purchasing power of those consumers in the society of the 
time. Purchase and sale of course involve sale and pur- 
chase : a quantity of saleable values on the one side which 
the owner is ready to sell, and a quantity of saleable values 
on the other side with which the owner is willing to buy. 
The production and the consumption are in such conditions 
purely and manifestly social; but the exchange, likewise a 
social function, is conducted under individual control, 
because appropriation of the product is still under indi- 
vidual (or capitalist company) ownership. 



262 THE ECONOMICS OF SOCIALISM 

It is the production and exchange of commodities in 
such conditions, I say, which Professor Jevons sets himself 
to examine. According to him, when two commodities are 
exchanged on a free market, the production of such com- 
modities being practically capable of indefinite increase and 
not restricted or monopolised — this is the essence of com- 
petitive capitalism — then that exchange, so effected, pro- 
claims that the " final utility " of the two sides of the trade 
equation is the same. This, and not the quantity of sim- 
ple, abstract, social human labour embodied in the com- 
modities on either side, determines the " ratio of their ex- 
change," their relative value. But let Jevons speak for 
himself, only taking note of the fact that he investigates 
social phenomena from the purely individual point of view 
of individual interest, individual desire, and individual 
labour. 

"Utility," he says, "though a quality of things, is no 
inherent quality. We can never, therefore, say absolutely 
that some objects have utility and others have not. The 
ore lying in the mine, the diamond escaping the eye of the 
searcher, the wheat lying unreaped, the fruit ungathered 
for want of consumers, have no utility at all. The most 
wholesome and necessary kinds of food are useless unless 
there are hands to collect and mouths to eat them sooner 
or later." 

How scientific, how enlightening, how truly philosophic 
is all this ! Platitude reduced to its final imbecility could 
surely no further go. " Nor, when we consider the matter 
closely ( !), can we say that all portions of the same com- 
modity possess equal utility. A quart of water per day 
has the high utility of saving a person from dying in a 
most distressing manner. Several gallons a day may pos- 



FINAL FUTILITY OF FINAL UTILITY 263 

sess much utility for such purposes as cooking and wash- 
ing; but, after an adequate supply is secured for these 
uses, any additional quantity is a matter of comparative in- 
difference. All that we can say, then, is that water, up to 
a certain quantity, is indispensable ; that further quantities 
will have various degrees of utility ; but that beyond a cer- 
tain quantity, the utility sinks gradually to zero; it may 
even become negative, that is to say, further supplies of the 
same substance may become inconvenient and harmful." 

That is to say, a flood may sweep everything away and 
drown a a person " who might, without a quart of it, have 
died of thirst! 

Jevons proceeds to apply the same luminous method of 
investigation to bread and clothes, and then goes on: 
" Utility must be considered as measured by, or even as 
actually identical with, the addition made to a person's 
happiness. It is a convenient name for the aggregate of 
the favourable balance of feeling produced — the sum of 
the pleasure created and the pain prevented. We must now 
carefully discriminate between the total utility arising 
from any commodity and the utility attaching to any par- 
ticular portion of it. Thus the total utility of the food we 
eat consists in maintaining life, and may be considered as 
infinitely great" — didn't Esau, when famishing, sell his 
birthright for a mess of pottage? — "but if we were to 
subtract a tenth part from what we eat daily our loss would 
be but slight. We " — who are we ? — " should certainly 
not lose a tenth part of the whole utility to us. It might 
be doubtful if we should suffer any harm at all" — obvi- 
ously Jevons had only the well-fed or over-fed classes in 
his mind. 

"Let us imagine the whole quantity of food which a 



264 THE ECONOMICS OF SOCIALISM 

person consumes on an average during twenty-four hours 
to be divided into ten equal parts. If his food be reduced 
by the last part, he will suffer but little; if a second part 
be deficient, he will feel the want distinctly; the subtrac- 
tion of the third tenth will be decidedly injurious; with 
every subsequent subtraction of a tenth part his sufferings 
will be more and more serious, until at length he will be 
on the verge of starvation " — last of all the man died 
also! 

And then Mr. Jevons is good enough to squirt a few 
pages of mathematics at us to illustrate, or obscure, this 
his most exquisite reasoning on the theory of value in ex- 
change. But he gives it all over again a little later, 
returning to his favourite water illustration. " We cannot 
live without water, and yet in ordinary circumstances we 
set no value on it. Why is this ? Simply because we have 
so much of it that its final degree of utility is reduced 
nearly to zero. We enjoy every day the almost infinite 
utility of water, but then we do not need to consume more 
than we have. Let the supply run short by drought, and 
we begin to feel the higher degrees of utility of which we 
think but little at other times." 

What is all this but the old " supply and demand " with 
a veil over its face ? Compare Lord Lauderdale : 

" With respect to the variations in value, of which every- 
thing valuable is susceptible, if we could suppose for a 
moment that any substance possessed intrinsic and fixed 
value so as to render an assumed quantity of it constantly, 
under all circumstances, of equal value, then the degree 
of all things, ascertained by such a fixed standard, would 
vary according to the proportion betwixt the quantity of 
them and the demand, and every commodity would of 



FINAL FUTILITY OF FINAL UTILITY 265 

course be subject to a variation from four different cir- 
cumstances. 

" 1. It would be subject to an increase of its value from 
a diminution of its quantity. 

"2. To a diminution of its value from an augmentation 
of its quantity. 

"3. It might suffer an augmentation in its value from 
the circumstance of an increased demand. 

"4. Its value might be diminished by a failure of de- 
mand. 

" As it will, however, clearly appear that no commodity 
can possess fixed and intrinsic value so as to qualify it for 
a measure of value of other commodities, mankind are 
induced to select as a practical measure of value that which 
appears to be least liable to any of these four sources 
of variation which are the sole causes of alteration or 
value. 

"When in common language, therefore, we express the 
value of any commodity, it may vary at one period from 
what it is at another, in consequence of eight different 
contingencies : 

"1. From the four circumstances above-stated, in rela- 
tion to the commodity of which we mean to express the 
value. 

" 2. From the same four circumstances in relation to 
the commodity we have adopted as a measure of value. 

" Water, it has been observed, is one of the things most 
useful to man, yet it seldom possesses any value; and the 
reason of this is evident : it rarely occurs that to its quality 
of utility is added the circumstance of existing in scarcity ; 
but if, in the course of a siege, or a sea-voyage, it becomes 
scarce, it instantly acquires value; and its value is subject 



266 THE ECONOMICS OF SOCIALISM 

to the same rule of variation as that of other commod- 
ities." l 

Reduced to their elements, all Jevons' "final utility," 
"esteem," and the like, are contained in that passage. It 
is unnecessary to quote Ricardo's criticism in view of other 
portions of this chapter which follow. But it is surely 
manifest that in a free market, for commodities which 
may be increased to practically any extent, the phenomena 
of supply and demand are but superficial. What really 
regulates the relative exchange value is the quantity of 
social human labour embodied in the commodity on the two 
sides, the demand and supply fluctuations being averaged 
over longer or shorter periods. 

The form of price to which Lord Lauderdale refers does 
but give the quantity of labour embodied in commodities, 
its name in money. Now "magnitude of value expresses 
a relation of social production; it expresses the connection 
that necessarily exists between a certain article and the 
portion of the total labour-time of society required to pro- 
duce it. As soon as the magnitude of value is converted 
into price, the above necessary relation takes the shape of 
a more or less accidental exchange ratio between a single 
commodity and another, the money commodity. 

"But this exchange-ratio may express either the real 
magnitude of that commodity's value or the quantity of 
gold deviating from that value for which, according to 
circumstances, it may be parted with. The possibility, 
therefore, of incongruity between price and magnitude of 
value" — the productive power of labour remaining con- 
stant — " or the deviation of the former from the latter, is 
inherent in the price-form itself. This is no defect, but, 

i"An Inquiry into the Nature and Origin of Public Wealth," 
pp. 15-16. 



FINAL FUTILITY OF FINAL UTILITY 267 

on the contrary, admirably adapts the price-form to a mode 
of production whose inherent laws impose themselves only 
as the mean of apparently lawless irregularities that com- 
pensate one another." x 

But our Professor is not content with "utility," " final 
utility," and "commodity." He treats us to a theory of 
" discommodity " or " disutility," which, it seems, too, is 
a something which, being a nuisance, helps us to realise 
the conception of value in exchange. So fond is he of 
this notion also that he repeats it two or three times. The 
sewage of great towns, for instance, " we can hardly call 
it a commodity," ( !) " acquires a higher and higher degree 
of disutility the greater the quantity to be disposed of." 

But now, to use Jevons' phrase, let us investigate the 
subject a little more closely : " In exchange for a diamond 
we can get a great quantity of iron, or corn, or paving- 
stones, or other commodity of which there is abundance; 
but we can get very few rubies, sapphires, or other precious 
stones. Silver is of high purchasing power compared with 
zinc, or lead, or iron, but of small purchasing power com- 
pared with gold, or platinum, or iridium." Why is this? 
Because — it is Professor Jevons who tells us so — " noth- 
ing can have a high purchasing power unless it be highly 
esteemed in itself; but it may be highly esteemed apart 
from all comparison with other things " — what on earth 
has this to do with exchange-value then? — "and, though 
highly esteemed, it may have a low purchasing power 
because those things against which it is measured are still 
more esteemed." 

From which it should now appear that not " utility " but 
" esteem " is the measure of the value of commodities. 

l Karl Marx, "Das Capital," p. 132. 



268 THE ECONOMICS OF SOCIALISM 

But then Jevons puts the whole thing right in this 
way: 

"(1) Value in use equals total utility. 

"(2) Esteem equals final degree of utility. 

"(3) Purchasing power equals ratio of exchange." 

All which no doubt advances our knowledge greatly ! 

But the main point is that labour embodied in commodi- 
ties is not the measure of their value; though, strange as 
it may seem, "economists have not been wanting" who 
have advanced this monstrous proposition. "But though 
labour is never the cause of value " — what does the word 
"cause" mean here? — "it is in a large proportion of 
cases the determining circumstance, and in the following 
way: Value depends solely on the final degree of utility 
[otherwise ' esteem *]. How can we vary this degree of 
utility? By having more or less of the commodity to 
consume. But how shall we get more or less of it? By 
spending more or less labour in obtaining a supply. 

" According to this view, then, there are two steps 
between labour and value. Labour affects supply, and 
supply affects the degree of utility, which governs value, or 
the ratio of exchange. In order that there may be no 
possible mistake about this all-important series of relations 
I will re-state it in a tabular form as follows : 

" Cost of production determines supply; 
Supply determines final degree of utility; 
Final degree of utility determines value." 

The italics throughout are Professor Jevons'. I think 
everyone will agree with me that nothing can be more 
strenuously put. The Professor was exceedingly anxious 
that there should "be no possible mistake" about that 



FINAL FUTILITY OF FINAL UTILITY 269 

which he manifestly regarded as the keystone of the arch 
of his whole theory. 

Now hear his most distinguished disciple and follower 
on this very passage. He speaks of the " loose and inac- 
curate " terms of the statement quoted, and goes on : " Let 
us turn then to examine the chain of causation in whicli 
Jevons' central position is formulated, in his second edi- 
tion, and compare it with the position taken up by Eicardo 
and Mill. He says : ' Cost of production determines 
supply/ &c, as above. Now if this series of causations 
really existed there could be no great harm in omitting the 
intermediate stage and saying that cost of production 
determines value. For if A is the cause of B which is 
the cause of C, then A is the cause of C." Surely a very 
economic Daniel come to judgment. "But," — pray mark 
this, Mr. H. S. Foxwell; read it, Mr. Philip Wicksteed, 
and inwardly digest it, Mr. Sidney Webb — " but in fact 
there is no such series ! " 

So far as I am aware, not one of the minor lights of the 
Jevonian firmament has twinkled out a reply to this direct 
and rather brutal contradiction. Which is right and which 
is wrong or whether both are in error, does not concern 
me at present. 

For, in truth, it is not necessary to go beyond Jevons 
himself to show how much importance we need attach to 
his utility views. For instance (at p. 186 of the third 
edition, p. 181 of the first edition, of his " Theory of Polit- 
ical Economy " ) he says : " It may tend to give the reader 
confidence in the preceding theories when he finds that 
they lead directly to the well-known law, as stated in the 
ordinary language of economists, that value is proportional 
to the cost of production." When I first read this passage, 



270 THE ECONOMICS OF SOCIALISM 

more than five-and-forty years ago, I threw down the book. 
I felt that I had been made a fool of through the previous 
180 pages, which, indeed, had conveyed not a single fresh 
idea to my mind. It is as complete a self-exposure as 
Henry George's famous economic bull, that all which is not 
wages is rent. 

But Professor Jevons must needs set out an equation of 
ratios to confirm the matter. At p. 191 we find the fol- 
lowing : 

"Value per unit of x cost of production per unit of x. 



Value per unit of y cost of production per unit of y. 

or, in other words, value is proportional to cost of produc- 
tion/' Once more the italics are Professor Jevons'. " As, 
moreover, the final degrees of utility of commodity are 
inversely as the quantities exchanged, it follows that the 
values per unit are directly proportional to the final degrees 
of utility" — have we reached the final degree of futility 
through all this wearisome logomachy ? For if " the ratio 
of exchange " — in other words, the value — " of any two 
commodities will be determined by a kind of struggle 
between the conditions of consumption and production," 
which is the temporary higgling of the market, influenced 
by supply and demand on either side, and " value is pro- 
portional to the cost of production," we are merely landed 
where the classical school of economists placed us 80 years 
ago. We have, in fact, what Jevons himself calls "the 
well-known and almost self-evident law that articles which 
can be produced in greater or less quantity exchange in 
proportion to their cost of production. The ratio of ex- 
change of commodities will, as a fact, conform in the long 
run to the cost of production." 



FINAL FUTILITY OF FINAL UTILITY 271 

And again, i( Thus we have proved " — by certain math- 
ematical formulas — " that commodities will exchange in 
any market in the ratio of the quantities produced by the 
same quantity of labour. But as the increment of labour 
considered is always the final one, our equation also ex- 
presses the truth that articles will exchange in quantities 
inversely as the cost of production of the most costly por- 
tions, i. e., the last portion added." 

The sentence italicised by Jevons is most unscientifically 
and incorrectly expressed. If, for example, in an open 
market, say for typewriters, " the last portion added " is 
more cheaply produced than all the rest, then beyond all 
question this last portion, if added in sufficient quantity, 
will reduce the exchange value of all similar articles to its 
own lower level in comparison with other articles whose 
cost of production remains stationary. But all this is 
temporarily determined by the higgling of the market. 
The law that commodities exchange on the average in rela- 
tion to the quantity of simple, abstract, social human labour 
embodied in them, asserts itself in despite of fluctuation. 

No attempt whatever is made by our Professor, be it 
observed, to analyse this " cost of production," this " quan- 
tity of labour." Jevons takes the phrase as he found it and 
leaves it there. Jevons was wholly ignorant of German, 
an ignorance which his followers have for the most part 
themselves assiduously cultivated. Yet it might have been 
thought that, by the year 1879, Jevons would have heard 
of the celebrated system of Marx, based upon simple, 
abstract, social human labour as the measure of the value 
of commodities in exchange; of the mehrwerth theory 
growing out of it; of the complete analysis of the cate- 
gories of capital and the circulation of commodities which 
followed; and even of the admirable criticisms on Adam 



272 THE ECONOMICS OF SOCIALISM 

Smith, Kicardo, the Physiocrats, and others which are now 
to be found in the second German volume. Apparently 
he had not. 

At any rate, Professor Jevons was content with the old 
confusions, and made no effort to clear them up. " Fixed 
and Circulating Capital " he supplements by such a mean- 
ingless phrase as " Free and Invested Capital " ; but of 
Constant Capital, Variable Capital, Money Capital, Goods 
Capital, Circulation Capital, in addition to Fixed and Cir- 
culating Capital, he and his followers still seem to be 
equally ignorant, regardless of the flood of light which 
Marx's subtle and exhaustive investigations have thrown 
upon the whole sphere of the production and circulation of 
commodities in modern society. 

With labour it is the same. The value of labour is 
spoken of as if it had not been shown conclusively that 
labour has no value, that labour can have no value, apart 
from the commodities in which it is embodied. "I hold 
labour," he says, " to be essentially variable, so that its 
value must be determined by the value of the produce, not 
the value of the produce by that of the labour/' Which 
means — what ? That the labour of a Zulu embodied in a 
diamond is worth more than the labour of the same Zulu 
for an equal time embodied in cane sugar? I am glad I 
am not called upon to answer. 

But Jevons actually jumbles up the productive labourers 
with barristers, merchants, schoolmasters, and the like! 
The exertion of vital force which incorporates labour in 
commodities he puts on the same economic plane as the 
exertion of vital force to secure the acquittal of a mur- 
derer, or the successful placing on the market of a large 
parcel of adulterated goods. Old Sir William Petty taught 
him better than that more than two hundred years ago. 



FINAL FUTILITY OF FINAL UTILITY 273 

For the father of modern political economy speaks of such 
" labourers " as these as persons " who properly and orig- 
inally earn nothing from the public, being only a kind of 
gamesters who play with one another for the labours of 
the poor, yielding of themselves no fruit at all." But a 
Professor of Political Economy at the University of 
Oxford, at tbe end of the reign of Queen Victoria, who 
could write as if the labour of a lawyer is the same in kind 
as the labour of an artisan, who also was quite ignorant of 
the meaning of social human labour in its simple, abstract 
form, was not a man likely to learn from a genuine thinker 
on Political Economy of the reign of Charles II. 

Professor Jevons himself, I may note, made no distinc- 
tion whatever between labour-power and labour. Yet 
labour-power is the value-creating commodity, which the 
capitalist buys, like other commodities on the market, and 
pays for in tbe form of money wages; and labour is the 
measure of the value of the commodities produced, in 
exchange with other commodities. Professor Alfred 
Marshall takes the distinction, without a word of acknowl- 
edgment, from Marx, but does not know what to do with it 
when he has got it. Do what he would, however, he could 
not possibly make a greater mess of his analysis than his 
master, Professor Jevons, did before him. 

For instance, Jevons says : " The view which I accept 
concerning the rate of wages is not more difficult to com- 
prehend than the current one. It is that the wages of a 
working-man are ultimately coincident with what he pro- 
duces after the deduction of rent, taxes and the interest on 
capital." Is not that luminous ? The wages of " a work- 
ing-man " are what he can get, after landlord, government 
and (shall we say?) banker have scrambled for their 
portions ! 



274 THE ECONOMICS OF SOCIALISM 

To begin with, in our present form of production, no 
human being can tell what any single working-man has 
produced. It is quite impossible to differentiate his single 
bit of social work from the mass in which it is blended and 
lost. How much further forward, therefore, are we for 
this? But in his other explanations, Jevons is much less 
clear even than Adam Smith or Quesnay ; for he omits alto- 
gether to take into consideration the "constant capital," 
the raw materials, the incidental materials, &c, which, 
though changed in form, appear, unchanged in value, in 
the complete product. Are we to understand that this 
belongs to " a working-man " ? Of course not. 

But such foolish omissions are only of a piece with the 
astounding statement which follows: "The fact that the 
workers are not their own capitalists introduces com- 
plexity into the problem " ! ! The fact that the workers, 
as a class, are not themselves capitalists, as a class, that 
they do not own and control their own means of produc- 
tion and exchange and pay themselves their own wages, this 
fact " introduces complexity " into the solution of the 
problem of modern production; in which all the means 
and instruments of production are in the hands of the 
capitalists and the workers have only their labour-power 
to sell. If I had tried to invent nonsense in order to have 
the pleasure of fathering it upon the late Professor, I am 
confident that I could not have hit upon anything so in- 
describably silly as this. Yet this is the genius before 
whose shrine our University Professors of Political Econ- 
omy still prostrate themselves ! 

If, however, Professor Jevons showed himself incon- 
sistent, incapable, and confused in his theories of value in 
exchange, labour, and capital, he was equally at a loss 
when he came to the discussion of practical questions. His 



FINAL FUTILITY OF FINAL UTILITY 275 

foolish utterances on the exhaustion of our coal supply 
have long since been forgotten. His speculations on the 
depreciation of gold have been absurdly falsified. His 
analysis of the problems connected with money has not 
advanced us a single step. His remarks about glufes and 
commercial crises are ridiculously weak. 

This last, I know, is a very tender place with economists 
of Professor Jevons' school. For what has " the master " 
said? "Overproduction is not possible in all branches of 
industry at once, but it is possible in some as compared 
with others." Now, as a matter of fact, the history of the 
commercial crises of the last century, if it throws into 
relief one point more clearly than another, proves that over- 
production, or glut, in all branches of industry at once — 
a complete industrial crisis owing to social causes in every 
department of industry — is not only possible but inev- 
itable. 

How to explain these recurring crises? Jevons was 
quite incapable of doing it. His " final utility " gave him 
no clue, and his followers, save in cases where they convey 
without acknowledgment from others, are as much at sea as 
he was himself. But — not to be beaten at once, he went 
off out of our social arrangements — the very idea of the 
antagonisms between social production and individual 
exchange, between commodities and money, between pro- 
duction for use and production for profit, never entered his 
mind — he went off, I say, out of our social arrangements, 
and even out of our planet, right away to the sun, the 
source, he thought, of economic as of other light. It was 
the spots on the sun that did all the mischief ! Unluckily 
for this hypothesis — but really it is not necessary to deal 
further with that ridiculous aberration. His own followers 
are ashamed of the nonsense, and I only refer to it now as 



276 THE ECONOMICS OF SOCIALISM 

further evidence of the utter futility of his own system. 
Fortunately, the entire theory of commercial crises has 
been worked out by a very different school of thinkers, and 
Jevons' " Commercial Crises and Sun Spots " may be left 
to gather dust on its neglected shelf, until some writer, 
with nothing better to do, thinks it worth while to publish 
a monograph on " The Strange Hallucinations of Professors 
of Political Economy." 

Professor Alfred Marshall has likewise his pretty little 
excursion into the realms of fancy in that huge tome of his 
that elucidates not a single problem which he takes upon 
himself to solve. Professor Marshall's hallucination as- 
sumes the shape of " Consumers' Rent." 

This learned gentleman from Oxford teaches the young 
gentlemen at Cambridge that if they would rather pay £1 
for a halfpenny box of matches than go without lucifers 
they pocket a Consumers' Rent to the tune of 19s. ll^d! 
This fallacy arises directly out of the notion that "final 
utility " or " esteem " constitutes the measure of value. 
When, however, the consumers, whether they be happy 
young undergraduates at Trinity, or luckless dockers at the 
East-end of London, grope in their breeches' pocket for the 
19s. ll%d., which is their just rent for having been able 
to buy matches so much below their " final utility," they 
will appreciate the humour of the learned professor at its 
true exchange value. 

" But for the honour of the thing now," said an Irish- 
man (whom I take to have been a lineal ancestor of Mr. 
George Bernard Shaw) when he was conveyed to a ball in 
a sedan-chair with no bottom to it — "but for the honour 
of the thing now, bedad, I might just as well have been 
walking ! " 

What now are the tests of really scientific method in 



FINAL FUTILITY OF FINAL UTILITY 277 

Economics, as in every other department of human knowl- 
edge? Eigid and logical analysis, accurate induction, 
luminous and pregnant hypothesis, masterly synthetic veri- 
fication, preparation of the ground for reasonable forecast. 
On every one of these points Professor Jevons is 
markedly deficient. His analysis is absolutely worthless; 
his induction is loose and useless; his working hypothesis 
is " conspicuous by its absence " ; having nothing to verify, 
his verification is unattempted; while forecast on his lines 
is utterly hopeless. The school of economists which has 
followed closely in his footsteps has been as barren of im- 
provement or discovery as he was himself. Only when 
they have abandoned his crude and ill-digested common- 
places in favour of a widely different method, have his 
pupils done any good work whatever. The Final Futility 
of Final Utility is conclusively proved by the utter incapac- 
ity of any thorough-going Jevonian to give a reasoning 
explanation of the daily working of the capitalist system 
of production and exchange. Surely it is high time that, 
at whatever expense to individual reputations, this involved 
and bootless theory should be generally recognised as the 
jumble of confusion which it is. 



CHAPTER XII 

SYNTHESIS OF ANALYSIS 

Such an analysis as that which it has been my endeavour 
to put in a compendious shape in the foregoing pages neces- 
sarily leads those who adopt it as a correct exposition of the 
main features of modern industrial society to consider the 
steps which can be consciously and advantageously taken 
towards the organisation of national and international pro- 
duction and distribution on a co-operative instead of on a 
competitive basis. 

Manifestly, the many antagonisms of our existing social 
system, arising out of the initial antagonism between social 
production and individual ownership and exchange, cannot 
be harmonised, so long as there is a wage-paying class and 
a wage-receiving class. All, therefore, who wish to solve 
the difficulties which at present face us must recognise that 
a complete economic and social revolution can alone give 
the desired result. 

This economic and social revolution is even now being 
prepared by the inherent weakness of the capitalist system, 
which has already seen its best days. The capitalist class 
itself has conclusively shown that it is unable to handle 
the great means and instruments of production and distri- 
bution to the general advantage of the community. Periods 
of wild inflation and ruinous depression ; overcrowded towns 
and deserted country; luxury above and starvation below; 
physical improvement of the well-to-do class accompanied 

by continuous deterioration and enfeeblement of a large 

278 



SYNTHESIS OF ANALYSIS 279 

portion of the working-class ; monopoly extending, yet the 
powers of the State used against the people — such are a 
few of the more obvious shortcomings of fully-developed 
capitalism which are preparing its downfall in every 
country. 

How to anticipate this downfall, and to ward off if pos- 
sible the danger of an intermediate period of anarchy, 
should be the thought and work of economists and states- 
men in every country. No doubt, in view of the deplorable 
social conditions of our time, it is a matter of little concern 
to the scientific sociologist whether the inevitable change 
takes place peacefully or tempestuously. 

We ourselves take no account to-day of the horrors of 
the barbarian invasion of the Roman Empire ; of the whole- 
sale slaughterings of conquering Mohammedanism in East 
and West; of the turmoil and ruffianism of the Middle 
Ages; or of the piracy and slaving by white men in North 
and South America and Asia which fitly ushered in the 
capitalist epoch. So it will be with those who come after 
us. The dwellers under international organised commun- 
ism will assuredly not trouble themselves to count the 
numbers of those who fell in the preceding conflicts, or to 
discriminate between the people who died from actual vio- 
lence and those who simply rotted out of existence in the 
bloody peace of our present class war. 

But such a conscious advance as Socialists advocate, even 
though it may not relieve society from the physical strug- 
gles which have accompanied or preceded other epochs of 
crucial change, will at least tend to shorten the period of 
disturbance and to lay the foundations for a solid recon- 
struction. 

That capital must be destroyed before any thorough 
reorganisation can take place is certain. This does not 



280 THE ECONOMICS OF SOCIALISM 

mean, however, that the great means and instruments of 
making and distributing wealth should he destroyed. Not 
at all. Capital expresses class-ownership and production 
for profit as the dominant economic and social system. 
Its destruction only involves the change from individual 
or company ownership to the ownership of the Community 
at large. Wagedom being finally done away with by the 
abolition of capital, industrial Communism will at once 
take its place. 

Now the only way in which this can be peacefully 
brought about, assuming that no cataclysm occurs, is 
through the agency of the democratic Community as the 
organised power of the whole people. Each department 
of industry or distribution which becomes a Public Service 
is already approaching to the Socialist form. To the form, 
I say, because, as in the case of the Post Office in all 
countries, the spirit of Socialism is wholly absent. Instead 
of co-operative organisation for the general advantage, we 
have to-day remuneration on the competitive scale and 
overwork, in the lower grades of the department, for the 
benefit of the dominant class. 

This arises, not from the nature of the case, but from the 
determination of that dominant class not to give up its 
position and privileges, and from the ignorance and apathy 
of the wage-earners, as well without as within the ranks of 
the department. There is no economic reason why this 
great public service in particular, with its wide national 
connections and international ramifications, should not 
form the nucleus of a great co-operative system. All its 
members and their families need food, clothing, and house- 
room, all render useful service in return for these and other 
necessaries of life; and the genuine co-operative methods 



SYNTHESIS OF ANALYSIS 281 

of supply once set on foot in any of the public services 
would speedily spread to others. 

During the war department after department of industry 
and distribution was brought under collective control and 
administration. But for the efforts of the Government to 
"keep the existing system in being" by upholding the 
monopoly banks, at one end of the scale, and the wasteful 
small distributors at the other, peaceful reconstruction, in 
the interest of the whole community, on co-operative lines, 
would have been carried much farther. Even as it was 
the war could not have been won on the old capitalist 
lines. 

In order to help in the beneficial national advance the 
great Co-operative Societies who supply between one-fourth 
and one-third of the population twice offered to place their 
entire organisation at the disposal of the Government. A 
similar proposal was made during the miners' strike. All 
these suggestions were declined. It is clear nevertheless 
that along these lines, in conjunction with the organised 
forces of labour the most effective and beneficial co-ordina- 
tion of existing competitive anarchy can be brought about. 
"Unfortunately, since the Armistice and the Peace, the 
dominant class has done its utmost to return to the old 
chaotic profiteering system and has succeeded so far in 
subordinating the management of the community to the 
control of the Trusts, now more powerful than ever. This 
policy, though temporarily successful, must ere long lead 
to the absorption of monopolies by the Co-operative Com- 
monwealth. 

Wherever, in fact, the company form on a large scale 
has been attained, either in production or distribution, 
there the economic development has already reached the 



282 THE ECONOMICS OF SOCIALISM 

point at which the State can easily step in and advan- 
tageously substitute a public service for a shareholders' 
organisation or monopoly. And those great enterprises 
which, from their inception, have been in the form of a 
joint-stock company are obviously those which lend them- 
selves most naturally to this change. 

Railways and canals, for example, being the main 
arteries of transport and communication in every civilised 
country, would be far better in the possession of the public 
at large, as are the highways and bridges which it has been 
the policy everywhere of late years to free from turnpikes 
and toll-bars. Such functions as those now fulfilled by 
railways can never be safely left in private hands. 

This is being recognised both in England and America, 
where railway companies have been allowed more latitude 
than anywhere else. The virtual monopoly of transport 
which they possess is so manifestly a government within a 
government, and so opposed to the public interest, that the 
demand for nationalisation and socialisation, that is, for 
their conversion into a co-operative public service, is daily 
growing on both sides of the Atlantic, and finds acceptance 
among members of the capitalist class itself. 

Assuming such nationalisation and socialisation to be 
carried out to the fullest extent, it by no means follows, of 
course, that, except in form, we should be any nearer to 
the institution of Social-Democracy, seeing that in coun- 
tries where the railways are already national property 
capitalism reigns supreme. But the machinery for co- 
operation is so far made ready for immediate use, and the 
area of possible peaceful transition is so greatly widened, 
that the abolition of wages and the co-operative apportion- 
ment of wealth could be easily set on foot. 

Similarly with coal and oil mines. Coal is a necessary 



SYNTHESIS OF ANALYSIS 283 

of modern industrial life, and, as in the case of the rail- 
ways, many of the dominant class who regard Social- 
Democracy with horror have been frightened by coal 
strikes, and the consequent stoppage of trade, into 
advocacy of the collective acquisition and management of 
coal mines in the interest of the whole community. The 
same reasoning applies with almost equal force to the great 
monopoly of mineral oil. The production and distribution 
of both is controlled by companies, and there is assuredly 
no economic difficulty to be overcome in their appropriation 
by the people at large. 

Here again the area of possible co-operative production 
and distribution would again be greatly extended, as these 
branches of industry became public services instead of 
company monopolies. 

The conversion of the factory industry in its various 
departments of cotton, wool, iron, leather, liquors, etc., 
presents greater difficulty. But here, likewise, there is now 
no longer any economic obstacle to be overcome. On the 
contrary, the economic forms are manifestly ready — and 
this applies in an equal degree to the great distributing 
stores owned by limited companies — for the transforma- 
tion from competition and production and distribution for 
profit, to co-operation and production and distribution for 
use. Eaw materials and goods of all kinds would then be 
produced and warehoused in publicly owned and communal 
stores for the service of all who formed part of the co- 
operative commonwealth. The moment, in short, men's 
minds become capable of understanding the real problem 
to be solved around them that problem is virtually on the 
high road to solution in so far as all these large organisa- 
tions are concerned. 

A more serious question is presented by the land; and 



284 THE ECONOMICS OP SOCIALISM 

the reorganisation of the great fundamental industry of 
agriculture on a co-operative basis is the most difficult 
problem of all. In no country has agriculture attained 
the company form except in a few isolated instances. In 
no nation except in England have the peasants been com- 
pletely uprooted from the soil; though the tendency for 
population everywhere is to migrate from the rural dis- 
tricts to the large towns. Each nation must inevitably 
settle this as other matters in accordance with its historic 
growth and the stage of its economic development. 

Where the population is still attached to the soil, as in 
France, Germany, Italy, and generally on the Continent of 
Europe, or where it has lately settled in the country dis- 
tricts, as in the United States and the Colonies, it is 
manifest that the difficulties to be met are quite different 
from those which have to be faced and dealt with in Eng- 
land. Yet in both cases the establishment of farming and 
market-gardening, as an industry to be worked with the 
best possible machinery and scientific appliances in co- 
operative union and alternation with other industries, is 
obviously the end to be aimed at. Nor are the obstacles 
so great as might at first sight appear. Though there can 
be no immediate progression from the company to ' the 
public service as in other cases, the moment co-operation 
and communism begin to replace competition and wage- 
slavery the tendency of agriculture will be towards the 
same organisation as obtains in the other departments of 
social work. 

It is the necessity for treating all the agencies of pro- 
duction and distribution as portions of the next great 
national development which constitutes mere municipalisa- 
tion a danger in the near future. To put gas, water, 
tramways, and so on under the control of the municipals 



SYNTHESIS OF ANALYSIS 285 

ties may mean better and cheaper administration under 
capitalist conditions. But the tendency of those who fix 
upon municipalities as the limit is to crystallise the towns 
as they are. 

Instead of doing this, the first object of Socialism must 
of necessity be to break down the barriers between country 
and town and spread the population out into the rural 
districts; not for the purpose of remaining isolated and 
immovably planted on the soil, but as a portion of the 
active life of the whole community according to the seasons ; 
the town forming the centres of manufacture and handi- 
craft and the gathering-places for the higher instruction 
and amusement. That the greater part of our modern 
cities will have to be completely destroyed is at any rate 
clear to all who bear in mind that fresh air is a necessity 
for healthy existence. 

Such reorganisation on progressive Social-Democratic, 
Co-operative lines may but too probably be interrupted by 
the economic and social collapse and cataclysm which some 
of us fear will overtake the peoples uninstructed as to its 
real meaning, and unprepared to deal capably with its 
results. In any case, however, the whole civilised world 
will inevitably be forced, sooner or later, to act together in 
the reconstitution of the future. The class war knows no 
national boundaries, the markets of our day are the markets 
of the world. As mankind has advanced in its economic 
and social progression from the gens and the tribe to the 
province, the municipality, the nation, so the change from 
the social production of commodities by wage-slaves, and 
the exchange for profit under the control of individuals, 
have broken down the boundaries of nationality, and the 
next stage will be international social production and social 
exchange of articles of use without profit. Economics, in 



286 THE ECONOMICS OF SOCIALISM 

the main, though by no means wholly, guide the course of 
human development, and the most careful economic 
analysis of , our present society shows us that, partly con- 
sciously and partly unconsciously, the greatest transforma- 
tion of the ages has already begun. 

That transformation must inevitably entail the complete 
overthrow of capitalist production of commodities for 
profit, and, therefore, the payment of wages for the pur- 
chase of labour-power. Then production for use by the 
social services of the whole adult community, having com- 
mand over nature and the social creation of wealth, by 
processes infinitely greater than any ever before at the 
disposal of mankind, will substitute the freedom of organ- 
ised co-operation for the slavery of competitive anarchy. 



